On December 12, 2022, UWC submitted comments to the US Department of Labor asking that references to UI and Workers’ Compensation in the definition of “employee” and “independent contractor” be removed. (see attached).The comments make the fundamental points that.
- The US Department of Labor is not authorized under the FLSA to adopt rules under which to determine whether individuals are employees or independent contractors for purposes of unemployment insurance or workers’ compensation programs.
- Applying the proposed analysis for classification of employees and independent contractors for FLSA would create confusion and additional inconsistency between determinations under FLSA and federal and state tax authorities and programs that distinguish between these classifications.
- Applying the proposed analysis would impose significant additional expense for employers and payroll companies.
- The proposed rule would result in confusion for workers and employers in determinations under the applicable UI or WC law.
Conclusion
The proposed rulemaking indicates that it is not intended to disrupt the businesses of independent contractors who are, as a matter of economic reality, in business for themselves, but that is exactly what it would do. The replacement of the rules adopted in 2021 with a “totality of circumstances” standard increases rather than decreases confusion for employers and workers. It makes it more difficult to make determinations without the legal certainty of specific statutory factors that can be demonstrated. A “totality of circumstances” standard will result in greater risk for employers, increased litigation, increased audits, and incongruity with definitions for tax and benefit program purposes.
The determination of whether individuals are employees or independent contractors is already extremely complicated. The analysis methodology under current FLSA law is better aligned with the analysis of direction or control which is the primary test in most taxing provisions and program eligibility definitions. It is also worth noting that a review of the full array of the business entities is needed with respect to the relationship between business entities that may be employers and individuals who may be employees or have ownership interests while also providing services.
Finally, we request that the language on Page 159 with respect to impact on unemployment insurance and workers’ compensation and the assumption that determinations under the proposed rule would be the same across all benefits and requirements be removed from the rule.
The US DOL Wage and Hour Division is currently receiving thousands of comments on the rule. See http://www.regulations.gov
UWC continues to follow the progress of this proposed rule with respect to UI and to WC.
