The Biden admin’s rule on labor classifications is much bigger than just gig companies

Do you get déjà vu?… The Labor Department rolled out a rule that could force companies to classify more workers as employees rather than independent contractors. If this sounds familiar, it has similarities to the California Prop 22 battle waged (and won) by gig companies like Uber, Lyft, and DoorDash, all of which avoided having to reclassify drivers. The new rule, which is set to apply across the US on March 11, would require that workers be classified as employees when they’re “economically dependent” on the company.

• Corporate response: There’ll likely be legal battles. The rule’s expected to raise costs for contractor-reliant industries like trucking, manufacturing, and healthcare.

• Labor response: Worker advocates said it’ll provide necessary protections for folks who’ve been missing out on the pay and benefits they’re owed after being misclassified by companies as contractors (sometimes intentionally).

A costly classification… Employees are more expensive than contractors because they get things like healthcare, paid time off, overtime, and sick leave. While the Labor Department doesn’t expect that the rule will lead to many businesses reclassifying workers, it said the change would allow for stronger enforcement against companies that intentionally misclassify to save $$. Misclassification is common in lots of industries, notably construction and healthcare.

• Construction: As many as 30% of US construction workers are misclassified as contractors, sometimes on purpose. In one conservative estimate, between 10% and 20% of the construction workforce was misclassified or paid off the books in 2021.

• Healthcare: As of November 2022, the Labor Department found classification violations in 80% of its care-industry investigations, and had recovered nearly $29M in back wages and damages for ~25K workers.