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If you have been following any of my updates, you are probably aware of the new proposed independent contractor rule offered by the Department of Labor.
The rule would 1) rescind the current independent contractor rule and 2) utilize a new “economic realities” test to determine if a worker is truly an independent contractor. This test includes factors such as investment, control, the opportunity for profit or loss, and whether the work is integral to the employer’s business.
DOL will apply a totality-of-the-circumstances analysis of the economic reality test that has a refined focus on whether each factor shows the worker is economically dependent upon the employer for work versus being in business for himself, does not use a predetermined weighting of factors and that considers the factors comprehensively instead of as discrete and unrelated.
I had the opportunity to participate in a roundtable discussion hosted by the Small Business Association. With over 200 attendees covering a wide range of industries, the consensus of the testimonies was that this proposed rule was poorly written and would devastate large sectors of the small business community.
NGCOA offered our comments sharing the impact the proposed rule would have on many professional instructors and the services clubs offer their members and guests. Unlike the current rule that relies on two key factors in applying the economic realities test: 1) “nature and degree of control over the work” and 2) “worker’s opportunity for profit or risk of loss,” under the proposed rule, DOL will use six factors.
1. The opportunity for profit or loss depending on managerial skill.
2. The investments by the worker and the employer.
3. The degree of permanence of the work relationship.
4. The nature and degree of employer control.
5. The extent to which the work performed is an integral part of the
employer’s business.
6. The worker’s use of skill and initiative.
NGCOA believes the planned use of a totality-of-the-circumstances analysis will result in a subjective analysis by the labor auditors. Thus business owners may be susceptible to increased fines and legal fees due to the subjectivity of the proposed rule's language.
DOL has asked for industry comments to be submitted by December 13, 2022. NGCOA will join other allied associations in submitting comments encouraging the Department to delay any changes to the current rule until a straightforward objective test can be established.
DOL has estimated that the cost for an employer to implement this rule is only $25 per converted employee. This fails to determine the legal cost the employer and contractor will require to interpret the guidance and the employer’s cost to defend their decision if a different decision is rendered during a state labor audit.
NGCOA submitted comments on December 6, 2022. We shared our concerns about the subjectivity of the proposed rule and its lack of clarity for individuals to self-establish themselves as independent contractors. Click here to read our comments. In addition to NGCOA, comments were filed by the PGA, CMAA, and NCA, along with industry comments from the American Golf Industry Coalition (AGIC). The Department is expected to issue a final rule no earlier than the first quarter of 2023.