House Committee Criticises Independent Contractor Rules

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The House Committee on Small Business has raised concerns over the Department of Labor’s (DOL) new rules for determining independent contractor status, urging the agency to reconsider its impact on smaller entities. In a letter addressed to Acting Labor Secretary Julie Su, Committee Chair Roger Williams expressed worry that the regulations, titled “Employee or Independent Contractor Classification Under the Fair Labor Standard Act,” will disproportionately affect smaller businesses, particularly in the construction, trucking, and healthcare industries.

The new rules, finalised last week, repeal a Trump-era contractor test implemented in 2021 and reintroduce a six-factor “economic realities” test. This change makes it more challenging for businesses to classify workers as independent contractors. The Labor Department contends that the new rules protect workers’ rights and ensure consistency across entities covered by the Fair Labor Standards Act.

Chairman Williams argued in the letter that the Small Business Administration’s Office of Advocacy has warned that the rule may jeopardise the livelihoods of entrepreneurs by reintroducing a confusing method for worker classification. Williams expressed concern that businesses might be less inclined to hire gig workers due to fears of legal repercussions for misclassification.

Additionally, Williams highlighted that over 22 million independent contractors may be affected by the rule, potentially forcing them to reclassify as employees and jeopardising their ability to operate as independent small businesses. Various trade groups and business organisations, including the Associated Builders and Contractors and the U.S. Chamber of Commerce, have also expressed concerns about the DOL’s new rule.

Chairman Williams criticised the DOL’s rule for failing to consider its impact on small businesses and highlighted the collaborative relationship between independent contractors and small businesses. He expressed frustration with the Biden Administration’s approach and emphasised the Committee’s commitment to holding them accountable and ensuring that entrepreneurs have a voice in the decision-making process.