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The U.S. Department of Labor on Tuesday issued a final rule that will force companies to treat some workers as employees rather than less expensive independent contractors, in a move that has riled business groups and will likely prompt legal challenges.
The rule is widely expected to increase labor costs for businesses in industries that rely on contract labor or freelancers, such as trucking, manufacturing, healthcare and app-based “gig” services.
Most federal and state labor laws, such as those requiring a minimum wage and overtime pay, apply only to a company’s employees. Studies suggest that employees can cost companies up to 30% more than independent contractors.
The rule will require that workers be considered employees rather than contractors when they are “economically dependent” on a company.
It replaces a Trump administration regulation favored by business groups that said workers who own their own businesses or are free to work for competing companies can be treated as contractors.
The new rule adopts a standard that courts have used for years to determine the proper classification of workers. That standard looks at several factors including the degree of control companies exercise over workers and whether the work performed is an integral part of a company’s business.
The Labor Department said it does not expect the rule to lead many companies, let alone entire industries, to reclassify workers. But it will enable more effective enforcement against businesses that purposely misclassify workers to save money, the agency said in the rule.
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