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Department of Labor Clarifies Independent Contractor Classification

Housing Policy + Finance

Department of Labor Clarifies Independent Contractor Classification

January 12, 2021
Worker hammering roof
Photo: ftfoxfoto

It will be easier to classify workers between independent contractors and employees, according to the U.S Department of Labor’s latest announcement—that is, if the Biden administration implements the rule. The rule provides clarification for employers who are determining whether their worker is an independent contractor or employee. The National Association of Home Builders says it has requested extra clarification on the ruling due to conflicting federal tests, in addition to requesting consistency for the definition of employee. DOL’s new rule even includes specific examples for the construction industry.

Though the rule is intended to take effect 60 days after it is published in the Federal Register, the DOL under the new Biden administration could delay the effective date and support legal challenges to keep the rule from being implemented.

The DOL’s final independent contractor rule as issued today still relies on an economic realities test to determine employment status, but adopts a more streamlined five-factor approach.

Two “core factors” are given greater weight in making this determination — the nature and degree of the employer’s control over the work, and the worker’s opportunity for profit or loss based on personal initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself.

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