Approximately 45% of the U.S. workforce, totaling over 72 million individuals, are independent workers, with nearly 30 million of them working full-time. While many choose this lifestyle for its freedom, some workers have been misclassified and should, in fact, be considered employees. This misclassification can lead to financial losses and ineligibility for state and federal unemployment benefits. About 10% of independent contractors earn less than the federal minimum wage of $7.25 per hour, particularly in low-paid industries such as construction, transportation, and home health care.
The Department of Labor uses an economic realities test to determine whether a worker should be classified as an independent contractor or an employee. A new rule change under the Fair Labor Standards Act, effective March 11, utilizes six metrics to analyze the working relationship. These metrics include the opportunity for profit or loss, investments by the worker and employer, permanence of the working relationship, control over the work, whether the work performed is integral to the employer's business, and the worker's skill and initiative.
The rule change reverts to the previous standard that existed before a 2021 change emphasizing a worker's control over work conditions and their opportunity for profit and loss. This change is primarily aimed at workers paid less than the federal minimum wage, and if workers believe they have been misclassified, they can file a claim with the Department of Labor for investigation.
In summary, the new rule is not a major change and is meant to address misclassification issues primarily affecting low-wage workers. Independent contractors who wish to maintain their status can do so.