New Independent Contractor Rule Could Benefit Staffing Firms

Organizations traditionally turned to staffing agencies to hire contingent workers, but the explosion of app-based job platforms in recent years to find on-demand and shift-based labor led to some disruption in the contingent labor market. 

Now the U.S. Department of Labor’s (DOL’s) new worker classification rule may turn that trend around, making businesses less likely to hire gig workers for fear of sparking misclassification lawsuits and instead consider staffing firms that operate as employers.

“The new rules likely will increase the risk of using app-based job platforms that classify workers as independent contractors and are unlikely to have a significant impact on the traditional staffing industry, because the vast majority of temporary workers assigned by staffing firms are classified as W-2 employees and therefore would be unaffected by the rules,” said Ed Lenz, senior counsel at the American Staffing Association in Alexandria, Va.

Lenz explained that it’s not exactly known how the new rule—which reinstates an earlier test for making classification decisions—will be interpreted by regulators and courts, but if it is upheld and enforced in a way that favors W-2 employment status, that will benefit the staffing industry.

“The rescinded rule from the Trump administration was seen to be more sympathetic to the independent contractor classification and favored an expansion of independent contractor work,” Lenz said. “The Biden administration, known to have a stronger labor orientation, disagreed with that prior rule.”

He added that he generally doesn’t see any problem with the online job platforms themselves. “The problem is with the relationship between the worker and the end user,” he said. “The end user supervises the workers on a day-to-day basis, and supervision and control is the paramount—if not exclusive—test of whether someone is an employee or an independent contractor. It’s very unlikely that a lower-skilled service worker like a certified nursing aide could be treated under any analysis as an independent contractor. Someone is the employer and if it is not the platform, then it’s the end user.”

The final rule will take effect on March 11, and the DOL intends to release more guidance to help employers comply with the final rule.

We’ve rounded up articles from SHRM Online to provide more context on the news.

‘Totality of the Circumstances’

The DOL’s final rule restores an earlier standard that required companies to weigh a variety of economic factors together to determine whether a worker is an employee or an independent contractor. The rule rescinds a 2021 rule in which two core factors—control over the work and opportunity for profit or loss—carried greater weight. Under the new rule, employers would use a totality-of-the-circumstances analysis, in which none of the factors carry greater weight.

The final rule has drawn criticism and concern from business groups, including SHRM. 

(SHRM Online)

Employee or Independent Contractor?

Under the Fair Labor Standards Act, employees are entitled to minimum wage, overtime pay and other benefits. Independent contractors are not entitled to such benefits, but they generally have more flexibility to set their own schedules and work for multiple companies.

(SHRM Online)

Independent Contractor Classifications May Need to Be Reviewed

Now that the Biden administration has issued a final rule on worker classification, employers should audit who they have classified as independent contractors, legal experts say. Proper classification of workers depends on applying the right test, which may differ under federal and state law.

(SHRM Online)

NLRB Case Modifies Standard

In June 2023, a decision from the National Labor Relations Board (NLRB) altered the standard employers must use to determine whether someone qualifies as an independent contractor under the National Labor Relations Act. Unlike employees, independent contractors can’t form unions and can’t file unfair labor practice charges with the NLRB.

(SHRM Online)