A significant number of workers in the country are categorized as independent contractors. Although gig work provides flexibility, it is widely recognized that gig workers don’t receive the same benefits and protections as regular employees. They are not protected by employment and labor regulations, which include wage and anti-discrimination laws and are also not eligible to join unions.
The latest law, which has been implemented under the Biden Administration, has mandated that some employers must classify certain workers as employees rather than independent contractors. This new legislation aims to protect the rights of those who work in the gig economy and to make it more difficult for companies to misclassify their workers as independent contractors. By classifying them as employees, they will be entitled to the same pay rates and benefits as those who are under contract. This change will ensure that these workers are provided with adequate protection and benefits and will help prevent exploitation and unfair treatment, a common issue in the gig economy.

Employers now must consider six criteria when deciding whether to classify a worker as an independent contractor or an employee. Those include:

1. Opportunity for profit or loss depending on managerial skill

2. Investments by the worker and the potential employer

3. Degree of permanence of the work relationship

4. Nature and degree of control

5. The extent to which the work performed is an integral part of the potential employer’s business

6. Worker’s skill and initiative

For businesses heavily reliant on independent contractors, the new rule could pose significant challenges. It represents a costly change and expansion of risk profiles, potentially impacting their financial stability.

By reclassifying individuals previously classified as independent contractors as employees, they become eligible for workers’ compensation benefits in case of work-related injuries. However, this reclassification can significantly increase the total cost of risk for many employers, including premiums and retained losses. One of the major concerns is that rising premiums will lead to businesses no longer being able to absorb their costs, which will ultimately result in passing them on to customers. This, in turn, may affect revenues and margins. Any company using independent contractors should be prepared to face more frequent wage and hour and employment litigation. Employers should also be aware that misclassifying employees can lead to legal liability for claims related to wages and hours.

The new rule’s implications for workers who choose to work as independent contractors are not yet clear. It’s uncertain if companies will limit these contractors’ hours or terminate their contracts altogether. There’s a possibility of reclassification as employees, which would significantly alter their employment status and benefits. This rule may also affect businesses heavily reliant on independent contractors, potentially leading to changes in their business models. Further clarification is needed to fully understand the rule’s impact on both workers and companies.