11/08/2022
Federal Proposal to Restrict Independent
Contractor Definition Has Negative Impact
You and Your Affected Small Business Clients Need Voice Opposition Now
Please forward this to your affected clients!
November 7, 2022 - There’s a new proposed rule at the Department of Labor that will significantly limit small businesses operating as independent contractors and small businesses who use independent contractors. It changes clear and logical rules and makes them subjective and restrictive.
The Current Rule That Supports Entrepreneurship:
The current rule stipulates two core factors that were key to determining the legal use of independent contractor status, which are simple and straightforward. It also included three more minor factors that could be used to determine whether a worker can operate as an independent contractor or must be classified as an employee. Essentially, the current rule considers the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment. In practice, the current rule ca be as simple as saying workers who own their own businesses and can work for competing companies are able to operate as independent contractors.
The Anti-Small Business Proposed Rule:
The proposed rule rescinds the earlier rule and replaces it with a complicated multi-factor totality of the circumstances test where the factors do not have a predetermined weight and each factor is given full consideration. In other words, the standards for qualification of independent contractor statues are much more extensive, often subjective, and difficult to meet.
2022-21454.pdf (govinfo.gov)
This proposal would establish a more overreaching “economic reality test” than before. The subjectivity of these factors, coupled with the fact that any one of the half dozen tests would disqualify entrepreneurs from being their own boss, exerts excessive restrictions on small businesses operating as independent contractors and small businesses who wish to utilize the services of independent contractors. Read More
Help SBAM and the Small Business
Community Defeat This Proposal
The Small Business Association of Michigan is asking business owners to weigh in with the Department of Labor’s public comment process. This negatively impacts 59 million workers - about 1/3 of the US workforce - who did at least some contract or freelance work last year. The gig economy is a powerful entrepreneurial force. It should not be smothered by the federal bureaucracy.
Here is suggested language for your comment:
The Department of Labor’s proposed rule change under the Fair Labor Standards Act (FLSA) will have a profoundly negative impact on many small businesses. The proposal limits the ability of entrepreneurs to start and grow their businesses as independent contractors or use independent contractors. The description of this proposed rule change as a “clarification” of existing law is misleading when, in reality, it represents a radical departure from current standards that will harm millions of small businesses.
The proposed rule uses a needlessly complicated and subjective “multi-factor totality of the circumstances” test where the freedom for entrepreneurs to operate as independent contractors is significantly diminished. In other words, the standards for qualification of independent contractor status are extensive, often subjective, and much more difficult to meet. Independent contractor criteria should be clear and objective, without reliance on bureaucratic judgment calls and gray areas.
The current independent contractor standards have served our economy and workers well and have been the basis for many entrepreneurs starting their own businesses. Furthermore, limiting the instances where small businesses can use independent contractors will be detrimental to entrepreneurs already struggling to find employees.
I urge you to withdraw this harmful proposed rule change.
Click here to submit your comment.
Thank you for your consideration in this important matter.
