Taking a page out of California’s handbook, the Biden administration issued a “final rule” on Jan. 9 that will define workers as employees or contract workers. The gig economy has been growing, especially since the pandemic, when many workers fulfilled their obligations from home. And it continues to increase as more people find ways to earn a living without having to clock in at an office and sit behind a desk. The move, especially during a presidential re-election campaign, is filled with controversy.
Some Gig Workers Now Employees
The new US Department of Labor (DOL) rule comes at a time when contract work is at an all-time high. Before COVID shut company doors, about 57.2 million people, or 36%, were gig workers according to Gallup and Statista. However, last year, the number of freelancers jumped to 73.3 million. During President Donald Trump’s administration, regulations stipulated that workers who own their own business or those who can work for competing companies can be considered contractors. However, the Biden administration claims this view violates US wage laws, allowing companies to spend less hiring independent contractors than regular employees.
“Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages,” Marty Walsh, then the labor secretary, said in October 2023, when the rule was first proposed.
Now, companies will have to prove that their contract workers are not misclassified or be forced to pay a fine. Unlike most gig workers, employees are entitled to earn at least minimum wage plus receive benefits. The rule defines workers as employees if they are “economically dependent” on a company. It also takes into consideration if the work performed is integral to the company and how much control the employer has over the workers.
According to a post from the Society of Human Resources Management, six factors determine if a worker is an employee or contract hire:
- The degree to which the employer controls how the work is done.
- The worker’s opportunity for profit or loss.
- The amount of skill and initiative required for the work.
- The degree of permanence of the working relationship.
- The worker’s investment in equipment or materials required for the task.
- The extent to which the service rendered is an integral part of the employer’s business.
“No factor or set of factors has a predetermined weight, and a totality of the circumstances of the working relationship must be considered,” said Jessica Looman, administrator of the DOL’s Wage and Hour Division in a press briefing. “The six factors are not exhaustive, nor are any of them more important than any others.”
So, who will this affect? It could hamper several industries, including retail, construction, manufacturing, truck drivers, medical, agriculture, janitorial, delivery, and others. More Perfect Union posted on X that, “This will mean higher wages and overtime pay for millions of workers in gig jobs, health care, construction, and more.”
But it also can cause other issues. A nurse wrote in a public comment to the DOL that, in addition to working 36 hours as a full-time employee at a hospital, he or she was also a 1099 contractor for an infusion company. “Being able to work on the side as an independent contractor for the infusion company allows me to work extra without burning out,” according to the post. “By implementing these new changes, I believe it would further damage the healthcare workers options to work as a 1099 contractor.”
Marc Freedman, the vice president of workplace policy at the US Chamber of Commerce, claims the rule is harmful to employers:
“The Department of Labor’s new regulation redefining when someone is an employee or an independent contractor is clearly biased towards declaring most independent contractors as employees, a move that will decrease flexibility and opportunity and result in lost earning opportunities for millions of Americans. [It] could have significant negative impacts on our economy.”
The American Trucking Association has been fighting this ever since California decided to implement the contractor’s regulation in 2020. Trucking companies rely heavily on contractors who own their own vehicles to meet their needs as well as to prevent the high cost of maintaining fleet trucks. President of the association, Chris Spear, said in a statement:
“I can think of nothing more un-American than for government to extinguish the freedom of individuals to choose work arrangements that suit their needs and fulfill their ambitions.”
Gig online and app-related jobs — such as drivers for Uber, Lyft, and DoorDash — are a gray area causing concern. In California, Uber warned voters that classifying drivers as employees would increase the cost of rides between 20% and 120%. Several companies got together and created the “most expensive ballot measure in California’s history that exempted them from reclassifying drivers as employees in the state,” The Wall Street Journal explained. “California voters supported the companies’ ballot initiative by an overwhelming majority.” Washington State, in 2022, passed a law to preserve independent contractor models for companies.
Sen. Bill Cassidy (R-LA) announced that he will fight the Biden administration’s new gig rule with a resolution to appeal it. He claimed it is just a way to boost labor unions’ efforts to increase their membership. The rule is scheduled to go into effect on March 11.