Labor Dept. Finalizes New Worker Classification Rules

There will soon be a new way to determine whether workers are employees or independent contractors. 

The Labor Department’s Wage and Hour Division plans to rescind the current standard for determining a worker’s status — an “economic reality test” involving five factors — and utilize a new test that looks at the totality of a worker’s relationship with an employer, according to an advance Federal Register notice. The new rule, which is set to be published Jan. 10, will take effect 60 days afterward. 

Some of the determinants under the new rule include “opportunity for profit or loss depending on managerial skill,” “degree of permanence of the work relationship” and “the extent to which the work performed is an integral part of the potential employer’s business.”  

No one factor will hold more weight than another, according to the text, and additional factors beyond those listed can be considered, depending on the specific situation. 

The Labor Department said it received several comments that the new rule would be biased towards classifying workers as employees but “reiterates that its proposal is consistent with longstanding judicial precedent.” The department noted that it does not expect to see lots of reclassifications under the rule. 

Under the current standard, established in 2021, five factors determine whether someone is a contractor or employee, with two factors being designated “core factors” that could tip the scales. 

In a statement, American Trucking Associations President and CEO Chris Spear argued that “it’s unfortunate that the administration has chosen to replace a clear and straightforward standard with a tangled mess that weakens our supply chain and undermines the livelihoods of hundreds of thousands of truckers across the country.”