The Department of Labor (DOL) is moving forward with plans of implementing new rules regarding the classification of independent contractors. The policy change aims to protect low wage, vulnerable workers from being classified as independent contractors rather than employees.
The new policy changes are far-reaching, potentially affecting workers in retail, food service, healthcare and the gig economy. However, the trucking industry has the potential to be hit exceptionally hard. If the rule takes effect, it could drastically change how trucking companies operate and reduce the number of opportunities and options for independent truckers.
That, in turn, would create a ripple effect that would make its way into other industries and could upset the ability for companies to quickly and seamlessly relocate employees as needed. Since employee relocation also requires the relocation of household goods, a shortage of trucking professionals can disrupt moves for employees.
What is the Current Rule?
The current DOL rule on who is an independent contractor and who is an employee is based on five factors, but there are two areas, called core factors, that carry the most weight. These are:
- the opportunity the worker has for profit or loss, and
- the nature and level of control the worker has over the work performed.
With those two factors heavily weighted, the other three factors are not as much of a focus for determining a worker’s status.
If the new DOL rule takes effect, however, the current rule will be repealed.
What are the New Implications?
Understanding the implications of the new DOL rule can help your company determine how it might be affected and any changes you’ll need to make to realize your company’s goals and plans for the future. There are three main implications of the DOL independent contractor rule:
1. The Totality of the Circumstances Would be the Focus
Right now, the DOL has a five-factor “test” to determine if someone is an employee or an independent contractor. Two of those factors are more heavily weighted than others, and the other three factors are important, but not as significant.
The new rule would look at the totality of the circumstances instead, without putting any additional weight onto any of the factors. There would also be changes to the current factors in that they would be updated and adjusted. In the end, the proposed rule has six factors for consideration instead of the current five.
Before this update, the DOL discovered that companies were incorrectly classifying employees as independent contractors. The changes will make it more difficult to classify someone as an independent contractor, meaning more companies will have to pay for “employees” who really don’t work in that capacity and don’t even want that classification.
Many companies can’t afford more employees, which is why they work with independent contractors. The new test could leave companies without the help they need and independent contractors without jobs.
2. The Current Rule Used by the DOL Would be Repealed
Rather than be merged into the new rule, the current rule would be completely repealed. That would mean companies that are working with independent contractors under the old rule wouldn’t be able to continue to do so.
Sometimes when changes are made, existing relationships are “grandfathered in,” in that they’re allowed to continue. This would not be the case with the new DOL rule, and every company that uses independent contractors, as well as the contractors themselves, will potentially be affected.
This could mean a profound change for the trucking industry and for relocation companies that use independent trucking professionals.
3. There Will Likely be Ambiguity in Classifying Many Workers
How to classify someone who meets some of the new factors but not all of them, or who meets the factors mostly but not completely, will likely become an issue. Just like the issues that appeared with AB5 in California, there will probably be lawsuits and other challenges ahead.
These legal challenges will come from companies that want to continue working with independent contractors and independent professionals who want to continue working as such. Expect arguable factors to be “bent” until the rule is changed again, or all the legal challenges are settled.
What Happens Next?
At TRC, we will be monitoring the proposed DOL contractor rule changes. We share the concerns of Worldwide ERC and the trucking industry that these changes could reduce opportunities for independent contractors and put further pressure on an already-stressed relocation industry. Relocating employees could face longer and costlier shipping processes, ultimately increasing relocation costs for companies, as well.
If the new rule takes effect, that will most likely occur in early 2023. Preparing for the potential changes is important, starting with understanding how employees and contractors are currently classified and why.
Many independent contractors who work in the trucking industry do not want employee status and consider themselves business owners. They set their own schedule and work with not for companies in their field. The DOL’s new rule, if it moves forward, would change that for many independent trucking professionals.
Companies that operate in the employee relocation space may be affected by the changes. Additionally, companies that retain relocation companies to help employees move from one place to another may also experience disruption.
Looking into the issue and deciding how to move forward, based on the likelihood of the changes, is the best option for any companies or independent truckers who will be affected if the changes are put in place.