Editorial
Independent Contractor Rule: Who Wins and Who Loses
The construction industry would like to hold off and change the Biden administration plan to reverse a Trump administration rule on independent contractors. A new U.S. Labor Dept. mandate would likely force more employers to put them on staff—switching these workers, in tax terms, to W2s from 1099s—and affording them the valuable benefits and protections that staff employees get. The idea is that such workers would gain, say some progressive policy analysts that support the change, to the tune of $3.3 billion a year in costs that employers would have to pick up.
As we know by the industry’s nature, construction employers manage a constantly shifting array of projects of different sizes. Right-sizing staff is one of the most important considerations employers make, especially when the economy is headed into a downturn.
With short time left for public comment on the proposed change, objections are pouring into the Federal Register docket. The Associated Builders and Contractors and the National Association of Home Builders seek more time to comment, noting the complexity of what is involved. Opponents who have commented include court reporters, a not-for-profit association manager and even a California freelance musician.
California enacted new independent contractor rules in 2020 but included carveouts for numerous industries and professions—and more changes are likely.
California is an interesting example because it has had such an independent contractor rule since 2020. Much of the publicity at that time was about what it would do to the gig economy and the prospects for driving services such as Uber and Lyft.
Under the Biden administration’s planned rule change, the determination of who is a full-time employee and who is an independent contractor would be made on “the totality of the circumstances” of the work, and not on a simple three-point test, as was done under the Trump administration.
California lawmakers in 2021 enacted a three-part independent contractor test. To qualify, a worker must be free from control of the hiring entity, perform work independently and be engaged in an independent occupation or trade of the same nature.
AGC of California says lobbying led to many exceptions, with different types of work subject to varying tests. Carveouts cover physicians, lawyers, engineers, architects and the construction industry. Some exceptions allow firms and individuals to default to a more flexible previous test used in the state. More changes and exceptions are likely.
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Who wins with the planned federal rule change? It could improve worklife—such as adding minimum wage, overtime pay and workers’ compensation benefits—for some. A lot of exploitation and cheating by unscrupulous employers would stop.
But smaller employers would get fresh headaches. And if not granted exceptions, other independent contractors will lose what they value in addition to money—their independence, by forcing them to become W2 employees instead of enjoying the gig economy freedom they want.
