The U.S. Department of Labor proposed a regulation that would make it harder for companies to classify workers as independent contractors, a shift likely to shake up the business models of ridesharing, delivery, and other industries that rely on gig workers.
Workers who are “economically dependent” on an organization will receive more benefits and protections than contractors. There could be a significant impact on company profits and hiring, household incomes, and worker quality of life.
Unlike a regulation authorized by Congress, this proposal is intended as an interpretive rule that only applies to laws the department enforces, such as the federal minimum wage. The rule would not directly affect what states and federal agencies decide about gig workers’ employment status, such as the Internal Revenue Service.
However, many employers, regulators, and judges may use the department’s interpretation as a guide when making decisions about worker classification.
Therefore, the proposal threatens gig companies and other service providers that claim their workers are contractors, even if it does not immediately affect their statuses.
Uber and Lyft stock prices fell dramatically Tuesday morning.
When workers are “economically reliant” on the firm, they are deemed employees and are entitled to more perks and legal protections than contractors, according to the plan.
The Labor Department stated that, among other things, it would assess workers’ possibility for profit or loss, the permanence of their occupations, and the degree of influence a firm has over a person.
Most federal and state labor rules, such as those requiring a minimum wage and overtime compensation, only apply to the employees of a corporation. According to some research, workers might cost corporations up to 30% more than independent contractors, on which many sectors have grown to rely.
U.S. Labor Secretary Marty Walsh noted that firms frequently misclassify vulnerable workers as independent contractors in a statement.
Walsh explained that misclassification robs workers of federal labor protections, including the ability to be paid their full, lawfully earned wages.
The rule, which would take at least several months to implement, would supersede a Trump administration regulation that states workers who own their businesses or have the potential to work for rival organizations, such as an Uber and Lyft driver, can be considered as contractors.
The new plan broadens the definition of who is considered an employee, matching legal guidelines offered by the Obama administration but rescinded by the Labor Department under former President Donald Trump.
According to a December 2021 poll by freelancing platform Upwork, more than one-third of U.S. employees, or about 60 million people, completed freelance work in the previous year.
Businesses’ lobbying groups met with White House officials, including the U.S. Chamber of Commerce, the National Association of Home Builders, the National Retail Federation, and Associated Builders and Contractors. These organizations have stated that any broad restriction will harm workers who desire to be autonomous and flexible.
However, several worker advocacy groups have claimed that firms are increasingly misclassifying employees as independent contractors to increase profits by depriving workers of reasonable compensation and benefits. The plan will be publicly published on Thursday, setting off a 45-day public feedback process.
