Change in Worker Classification Rule

The Biden Department of Labor (DOL) has proposed a new standard for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). The new proposed rule would restore the multi-factor, totality-of-the-circumstances approach to determining whether a worker is an employee or an independent contractor. Those factors would once again be evaluated without assigning any particular weight to any specific factor. According to the DOL, the focus in determining independent contractor status under this rule should rest on the economic realities of the work relationship, including investment, opportunity for profit or risk of loss and whether the work is integral to the employer's business.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the most recent change in the worker classification standards.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: The DOL is essentially moving back toward a tried and true standard for determining independent contractor status--one that has worked for years and that business owners and workers alike understand. Changing the standard only added a level of confusion for business owners who rely on independent contractors. All we're doing now is returning back to a standard that has worked for years and really didn’t need to be modified in the first place.

Byrnes: The old standard wasn't working. It was much too easy to manipulate so that businesses were able to label true employees as independent contractors, stripping those workers of important protections. Concentrating on the most important and relevant facets of an employment relationship was the way to go--meaning that businesses should have found the new approach that focused on only a few discrete factors, rather than a long 20-factor list, much more appealing.

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Bloink: On the contrary, the Trump-era independent contractor test really resulted in many more workers being inappropriately classified as independent contractors. Under the Biden-era test, it becomes much more difficult for employers to misclassify employees as independent contractors—and we all know and agree that worker misclassification is a serious issue that strips many workers of significant protections under the FLSA.

Byrnes: The Trump-era standard provided a clear and simple way for businesses to determine whether a worker could properly be classified as an independent contractor. Because the penalties for worker misclassification can be steep, it’s important to provide as much clarity and simplicity as possible—so that businesses don’t have to engage in guesswork to determine what the DOL or the courts will say with respect to any given scenario.

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Bloink: Returning to the old standard provides a level of consistency that we haven’t seen with respect to worker classification in years. The old standard aligns the DOL approach with the approach taken by the courts with respect to FLSA classifications, protecting a wide range of employees and their rights to fair wages, overtime pay and other basic protections. A return to the old standard is the best way to protect American employees from businesses that attempt to misclassify workers, maximizing their own profits at the expense of hardworking Americans.

Byrnes: What’s old isn’t always what’s best. We have to accept that the old standard was not working. We need to adopt the standard that best supports our small business owners who are struggling enough with the complexities of the legal system governing business operations in this country. Simplifying the standard to assign greatest weight to just a few discrete factors was the best way to go about helping our American business owners who rely on independent contractors in their day-to-day operations.