The Biden administration is introducing a new labor regulation aimed at preventing employers from avoiding paying minimum wages and overtime by calling employees “independent contractors.” This comes just when U.S. President Joe Biden is visiting South Carolina as a part of Democratic primaries campaign.
This final regulation, which was unveiled on Tuesday and will go into effect from March 11, aims to stop the incorrect labeling of workers. Officials from the administration believe that while some workers are genuinely independent, many are wrongly labeled as such by companies looking to save money.
The Biden admin expects business organizations to challenge this new labor regulation
There’s a good chance that business organizations will challenge this new rule in court. However, Julie Su, the acting labor secretary, believes this rule is a logical step to protect the most at-risk workers from exploitation.
“I have traveled and talked to workers across the country who are working full time year-round and still struggle to make ends meet because of misclassification,” Su said on a call with reporters. “They sometimes work side by side with individuals who are properly classified doing the same work. But misclassified employees don’t get paid for all of their hours.”
She described incorrectly labeling workers as “independent contractors” as a main way companies commit wage theft and exploit workers.
The issue of independent contractors is a big deal in the gig economy. Companies like Uber and Lyft operate on the idea that their drivers are their own bosses, not employees of these big tech companies. However, the new rule could impact various sectors, like transport, construction, health care, and tech, where the status of workers as independent could be dubious.
Jessica Looman, head of the Labor Department’s wage and hour division, explained that the rule introduced on Tuesday is specific to the Fair Labor Standards Act. This act sets the minimum wage and overtime pay, but the rule won’t change other labor laws, like those about joining a union.
“It has no effect on other laws ― federal, state or local ― that use different standards for employee misclassification,” Looman said.
Unlike regular hourly employees, independent contractors don’t get extra pay for working more than 40 hours a week. Looman emphasized that making sure companies correctly classify their workers will be a key focus for the department.
Instead of directly stating who is or isn’t an employee, the regulation provides guidelines for the Labor Department to decide if someone is truly working independently. Factors include how much control the worker has over their daily tasks, the permanence of the work, and how crucial the work is to the employer’s operations.
Flex, a trade organization representing gig companies like Uber and Lyft, expressed concern that the rule “might create a lot of uncertainty” for those working on these platforms.
“That’s why we will seek to ensure implementation of this rule does not target workers who overwhelmingly turn to app-based platforms to earn supplemental income on their own terms,” the group said.
This rule is more restrictive for employers compared to one introduced by former President Donald Trump just before his term ended. It’s similar to a regulation from former President Barack Obama’s time. Biden began to undo the Trump regulation soon after taking office, indicating a return to the strict enforcement of worker classification from the Obama era. Su commented that the Trump regulation strayed from established legal interpretations of the issue.
“The previous rule made it easier for businesses to misclassify workers,” Su said.
Right now, 22 million U.S. workers classified as independent contractors
The Labor Department estimates there are 22 million U.S. workers classified as independent contractors. Officials cite a study from the National Employment Law Project suggesting that 10% to 30% of these contractors should actually be considered employees, with corresponding workplace protections and benefits.
By hiring contractors, companies can skip some employment-related expenses like payroll taxes and workers’ compensation, and also make union formation harder for employees. Labor advocates and unions argue that misclassification has become excessive, with employers shifting traditional employment costs onto workers.
The U.S. Chamber of Commerce and other business groups have resisted these changes to independent contractor rules, first suggested by the administration in October 2022. The rule released on Tuesday came after a period of public feedback, where both workers and employers could share their opinions. Legal challenges by those opposed to the rule might delay or even stop it from being put into practice.
The Labor Department isn’t the only federal body aiming to tighten rules on independent contractors. The National Labor Relations Board, which deals with union disputes in the private sector, made a decision last year that might result in more workers being seen as employees and thus able to join together for collective bargaining.