How the Biden Administration's 2024 Contractor Rule Affects Workers' Comp

On March 11, 2024, a new rule on independent contractor classification took effect in the United States. This rule from the Department of Labor (DOL) changes the criteria used under the Fair Labor Standards Act (FLSA) to determine if a worker is a contractor or employee. If you’ve been injured at work and aren’t sure whether you would qualify for benefits as an employee, this change to the law could affect you.

What is the new independent contractor rule?

The new contractor rule aims to reduce how often employers misclassify their workers as independent contractors or freelancers. This rule especially targets workers in the gig economy, like Uber, Lyft, and Amazon drivers.

Previously, employers had more room to classify workers as independent contractors even when those workers had similar duties and job structures to full-time employees. Misclassified workers then lost out on benefits they should have had access to, such as minimum wage, overtime pay, and workers’ compensation benefits after on-the-job injuries.

The technical details

Officially called the Employee or Independent Contractor Classification Under the Fair Labor Standards Act (rule 1235-AA43), this rule was first proposed in 2022. It was meant to replace a previous rule, passed under the Trump administration, which would have allowed companies in the gig economy to more easily classify workers as independent contractors.

What is the FLSA?

The Fair Labor Standards Act (FLSA) established an employee’s right to a federal minimum wage and time-and-a-half overtime pay. It also restricted child labor and created recordkeeping requirements for employers. The act was signed into law in 1938 but has been revised many times since then. Learn more on the DOL website.

When does the new contractor rule take effect?

The Department of Labor published the rule in January 2024, but it didn’t take full effect until March 11, 2024. From that date onward, companies and the court system can use the new rule when determining when a worker is a contractor or an employee.

How the new rule works: 6 criteria for employees

This rule uses an “economic realities” test with six criteria or conditions that help determine whether someone is a contractor or an employee. There is no set number of criteria someone must satisfy to be an employee and none of these factors necessarily has a bigger weight than others. When a court uses this rule to decide someone’s employment status, they will consider all of them. The rule also accounts for other factors at play, like whether a worker operates as an independent business.

The six criteria for judging contractors vs. employees are:

1. Opportunity for profit for loss depending on managerial skill: This part of the rule examines how much control the worker has over their rates and marketing versus the employer. If the worker can set their own rates, for example, they have a higher likelihood of being a contractor than an employee.

2. Investments by the worker and employer: Whether the worker or employer pays for resources like tools, equipment, or a vehicle also affects the worker’s status.

3. Degree of permanence of the work relationship: The expectation of how long a worker will work for an employer also impacts their status. For example, a contract without a specific end date leans more towards employee status than contractor status.

4. Nature and degree of control: Under this part of the rule, the amount of control the employer has over how, when, and where the worker does work is an indicator of the worker’s status. If an employer sets a specific schedule or location for the worker to do their job, for instance, they could be an employee.

5. Extent to which the work is an integral part of the employer’s business: This part of the rule covers how, if a worker’s work is vital to the employer’s business, they are more likely to be classified as an employee. So a caterer who serves lunch at a bank is probably a contractor because the bank doesn’t serve food as a core part of its business. Meanwhile, a delivery driver whom a company relies on to deliver online orders would fall into more of a gray area.

6. Skill and initiative: The final part of the rule checks if the worker has unique skills or initiative that make them more “business-like” than a regular employee. For example, a worker who takes the initiative on drafting contracts and marketing themself as a business has a higher chance of being a contractor than one who doesn’t.

What does this rule mean for you if you need workers’ comp?

This rule is overall a positive change for injured workers who are currently classified as contractors but are trying to receive workers’ compensation as employees. As explained by MSNBC, this rule could help many misclassified workers get other benefits they deserve, like lost wages from work done for less than the minimum wage.

If you’re thinking of applying for workers’ comp but believe you’re misclassified as a contractor, this rule could put you at an advantage. However, if you’re currently misclassified as a contractor, changing your status won’t necessarily be easy. Unless your employer voluntarily reclassifies you, you would still need to take legal action against your employer to get the benefits you’re entitled to.

On the flip side, workers who are already employees or receiving workers’ comp don’t have to worry about losing their benefits because of this rule. It leans toward classifying more contractors as employees rather than the other way around.

What to do if you get hurt or sick at work

Employees are entitled to workers’ compensation benefits if they need to miss work after a work-related injury or illness. Whether you’re already an employee or are misclassified as a contractor, a workers’ comp lawyer can help you get the benefits you deserve. Atticus can connect you with an experienced workers’ comp lawyer today. Fill out our free workers’ comp questionnaire and someone from our team will reach out to learn more about your situation and answer your workers’ comp questions.