Moving Words – IC Final Rule

Timothy Brady

“Rules are for the obedience of fools and the guidance of wise men.” Harry Day

The US Department of Labor is rescinding the Trump era independent contractor rule (2021IC Rule) and replacing it with RIN 1235-AA43 Employee or Independent Contractor Classification Under the Fair Labor Standards Act. While the DOL states the new rule won’t cause any widespread reclassification from independent contractor to employee, it would be prudent for moving companies, van lines and their agents to be fully informed and up-to-date on the changes.

On March 10, 2024, the U.S. Department of Labor Final Rule:  Employee or Independent Contractor Classification Under the Fair Labor Standards Act, RIN 1235-AA43 will go into effect. This rule revises the DOL’s guidance on how to analyze the difference between what constitutes classifying a worker as an employee or an independent contractor (IC). This new rule revokes the Independent Contractor Status under the Fair Labor Standards Act rule (2021IC Rule), that was published January 7, 2021.This new rule replaces the 2021IC Rule with an analysis for determining the status of whether a person is an employee or an independent contractor that, according to the DOL, is more consistent with the Fair Labor Standards Act as interpreted by long-established judicial precedent.

The misclassification of an individual as to whether they’re an employee or independent contractor can affect an employee being denied minimum wages, overtime pay, worker’s compensation coverage for injuries, and taxes. This final rule will reduce the risk that employees are misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves.

The Department of Labor has insisted throughout the rulemaking procedure that the new rule will not cause any widespread reclassification of workers from independent contractor to employee.

There are six economic reality factors this new rule will incorporate in the regulation to decide employee/independent contractor status. They are as follows:

Opportunity for profit or loss depending on managerial skill. Does the worker hold true opportunity for profit or loss based on managerial skill (including initiative or business acumen or judgment)? Does that opportunity affect the worker’s economic success or failure in performing the work? If a worker has no opportunity for a profit or loss, then this factor suggests the worker is an employee.

Investments by the worker and the potential employer. This factor considers whether any investments by a worker are capital or entrepreneurial in nature. Costs to a worker of tools and equipment to perform a specific job, costs of workers’ labor, and costs that the potential employer imposes unilaterally on the worker, for example, are not evidence of capital or entrepreneurial investment and indicate employee status.

Investments that are capital or entrepreneurial in nature, rather, and thus show independent contractor status generally support an independent business and serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach.

DOL said the focus of this factor should be comparing the investments of a worker and employer to determine whether the worker is making similar types of investments as the potential employer, even if on a smaller scale, to suggest that the worker is operating independently.

Degree of permanence of the work relationship. This factor weighs in favor of the worker being an employee when the work relationship is indefinite in duration, continuous, or exclusive of work for other employers. It weighs in favor of the worker being an independent contractor when the work relationship is definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for him- or herself and marketing their services or labor to multiple entities.

Nature and degree of control. To what extent does the potential employer control the performance of the work and the economic aspects of the working relationship? Facts relevant to control include whether the potential employer sets the worker’s schedule, supervises the performance of the work, or explicitly limits the worker’s ability to work for others.

The extent to which the work is performed is an integral part of the potential employer’s business. Is the work performed an integral part of the potential employer’s business? This factor weighs in favor of the worker being an employee when the work performed is critical, necessary or central to the potential employer’s principal business, and it weighs in favor of the worker being an independent contractor when the work they perform is not critical, necessary or central to the potential employer’s principal business.

Skill and initiative. Finally, this factor considers whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.

For more details about this new rule here’s the FAQ page on the US Department of Labor website.

“You have to learn the rules of the game. And then you have to play better than anyone else.” Unknown