The Biden administration has proposed a new federal rule that will make it more difficult for employers to classify workers as independent contractors.
If the new rule takes effect, companies that use independent contractors will have to reevaluate their relationships with these outside workers. Companies who hire contractors that work exclusively for them will have the hardest time trying to continue classifying them as independent.
The debate about classifying workers has been brewing for decades. Under the federal Fair Labor Standards Act (FLSA), employees have rights to benefits that elude independent contractors, including the rights to a minimum wage, overtime pay, unemployment insurance, health insurance, sick time and employer contributions to Social Security taxes. Their employers also purchase workers’ compensation insurance to cover them if they are injured on the job.
Companies that misclassify workers as independent contractors can face significant fines and back taxes, as well as their workers’ compensation insurer clawing back premiums the employer should have paid. Misclassifying workers also gives companies that do this an unfair advantage over their competitors that don’t. Proposed Rule Could Turn Independent Contractors into Employees