How New Independent Contractor Rule Impacts Construction Companies

On Jan. 9, the U.S. Department of Labor announced a final rule that could have wide-ranging worker classification ramifications for the construction industry. This new rule goes into effect on March 11. 

Reasoning Behind the Rule 

According to Acting Secretary of Labor Julie Su, “Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections. This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.” 

The new rule rescinds the Trump-era 2021 Independent Contactor Rule, and the DOL asserts that it better aligns with precedent for categorizing workers as employees or independent contractors. It is intended to protect workers’ rights as they are outlined in the Fair Labor Standards Act, but the new rule will make it more difficult to maintain independent contractors. 

6 Classification Factors 

The final rule uses six factors to determine a construction or other worker’s classification: 

1 | The worker’s opportunity for profit or loss.  

Does the worker have the latitude to choose the tasks to perform and to negotiate the rate of pay? Does the worker acquire more work through marketing efforts? If so, that worker appears to be an independent contractor. 

2 | Investments made by the employer and the worker.  

Does the worker use company equipment? Or does the worker provide and use personal equipment? If the latter, the worker could be considered an independent contractor. 

3 | Permanence of the working relationship.  

Does the worker provide services to the employer on a regular, ongoing basis? Or is the work occasional or erratic? If the latter, the worker might be deemed an independent contractor. However, this factor can vary based on industry. 

4 | Nature of the work and the degree of control.  

Does the worker set the schedule? Or does the employer set the hours and supervise the worker? If the latter, the worker may be an employee. 

5 | Work integral to the employer’s business.  

Is the work being completed essential to the company’s purpose and success? If so, the worker may be classified as an employee. 

6 | Utilization of the worker’s skill and initiative.  

Does the worker use specialized skills? If so, that could indicate an independent contractor. But if the worker does not use such skills or has been trained by the employer, that could indicate employee status. It is critical, however, to consider how the skills are related to the business. 

What the Rule Means for Construction 

The construction industry relies on tradespeople and subcontractors, so maneuvering this new rule may prove challenging. Most of those professionals have specialized skills, and work can often be sporadic, so those factors can lean toward independent contractor status. However, these professionals do perform work that is essential to the employers’ businesses. 

Members of construction crews likely use company equipment, they may be told what hours to work and they probably are supervised by company managers, so according to the rule parameters, they would be considered employees. 

Keep in mind that when classifying construction workers, it is important to consider all six factors. If you want to learn more about each factor and how to weigh them, review the FAQs from the DOL. 

For further guidance, you can reach out to your local DOL Wage and Hour District Office or seek legal counsel. An experienced employment attorney can explain the six factors, review your workers’ responsibilities and help you determine the most appropriate classification. 

The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.