How the New Independent Contractor Rule Could Impact the Senior Care Gig Economy

In January 2024, the U.S. Department of Labor (USDOL) announced a final rule on classifying workers as employees or independent contractors under the Fair Labor Standards Act. The rule rescinds the 2021 Independent Contractor Rule and uses six factors to classify workers. The USDOL first proposed the new rule in October 2022, and the final rule will take effect on March 11, 2024.

Joshua L. Weiner, Partner and Co-Chair of the Employment & Labor Law Group at Lindabury, McCormick, Estabrook, & Cooper, P.C.

Given that the rule changes the factors used to classify workers as employees or independent contractors, it has the potential to affect senior care communities that have relationships with independent contractors. I Advance Senior Care spoke with Joshua L. Weiner, Partner and Co-Chair of the Employment & Labor Law Group at Lindabury, McCormick, Estabrook, & Cooper, P.C., to explore the changes made by the rule, how it could impact the senior care industry, and what steps senior care communities should take to prepare for its implementation.

Understanding the New Independent Contractor Rule

According to a press release, “The rule provides guidance on proper classification and seeks to combat employee misclassification, a serious problem that impacts workers’ rights to minimum wage and overtime pay, facilitates wage theft, allows some employers to undercut their law-abiding competition and hurts the economy at-large.”

“The new USDOL rule replaced the one that was in effect in 2021, which was the one under the Trump administration,” explains Weiner. “The 2021 rule was more employer-friendly, and it was a test that basically, at its core, was less likely to find that someone was an employee, and more likely to find someone was an independent contractor. It was easier, essentially, to classify someone as an independent contractor under that test.”

Weiner explains that the new rule takes a different approach. “The new rule makes it harder to demonstrate someone is an independent contractor,” he says. “The main reason is that under the 2021 rule, they looked at two core things: The nature and degree of control over the work being performed by the individual, and that individual’s opportunity for profit and loss, such as to have a livelihood elsewhere.”

He illustrates the 2021 rule’s application with an example. “I work at a law firm,” says Weiner. “The person who comes in to water the plants is an independent contractor. We don’t control the way they do things, and they have other clients. But the director of IT services only us and we have control over the matter and means in which they provide the work for us. They are an employee.”

Instead of focusing on those two factors, the new rule has six factors, and no one factor is weighted more than any other. Those factors are:

• Any opportunity for profit or loss the worker has.
• The financial stake and nature of any resources a worker invests in the work.
• The degree of permanence of the work relationship.
• The degree of control an employer has over the person’s work.
• Whether the work the person does is essential to the employer’s business.
• The worker’s skill and initiative.

“Getting rid of all the smoke and mirrors, under this new rule, it is easier to find that someone is an employee, and it’s harder to demonstrate that they’re an independent contractor than under the prior rule,” says Weiner.

Implications of the New Rule

Weiner notes that the rule’s implementation follows a general movement throughout the country that is making it much harder for employers or businesses to classify workers as independent contractors. “However, since it’s a rule and not a statute, courts don’t necessarily have to follow it,” he says, although federal courts are inclined to follow guidance and rules issued by USDOL.

“When the USDOL conducts an audit, they’re going to follow their own rules and guidance,” Weiner says. “Once you’re under an investigation by USDOL, you’re under their control. But because this rule has yet to go into effect, we don’t know necessarily what the overall real-world implications are.”

In terms of consequences for misclassifying an employee as an independent contractor under the new rule, Weiner explains that the USDOL is only concerned with overtime and minimum wage. “In the eyes of the USDOL, if they are to find certain employees are misclassified, there’s not necessarily any penalties, but they’re going to look and see if they were being paid under minimum wage on the federal level, and if they are not being paid overtime,” says Weiner. A business could owe the employees the applicable overtime or minimum wage, as well as potential liquidated damages, which is double the amount of pay. “Usually, the largest concern is the wages,” he says.

However, the USDOL does issue penalties, though in many instances, the amount of the penalties pales in comparison to any back pay that may be owed to employees. The USDOL’s penalties for misclassification can range up to $1,000 per misclassified employee.

How the Rule Could Impact Senior Care Communities

Senior care communities that have relationships with independent contractors could potentially be affected by the rule. Weiner notes that workers in food services, custodial services, and specific medical services are sometimes independent contractors. “Usually what happens is that food or custodial staff are people working for an outside company, and they’re brought in by that outside company.” He notes that such a situation poses a very low risk under the new rule, since those individuals are paid and controlled by the outside company.

Doctors also often operate as independent contractors for senior care communities, and they typically are not working exclusively for a particular senior care community. “They may be contracted to provide certain medical care, but they do rounds and go to multiple medical facilities,” he says. “There’s very little risk; it goes to the control and opportunity to get work elsewhere. Risk may arise if the physician is exclusively providing services to one facility, and if they don’t have time to provide services anywhere else. That’s really leaning toward them being employees.”

He explains that there is also very little risk of physicians being paid less than the minimal wage, and they aren’t subject to overtime. “On the federal level, I see very little risk for senior care facilities that may be utilizing physicians that they designate as independent contractors,” says Weiner. “It’s really only an issue with those providing blue collar services, such as custodial and nursing staff.” However, if those staff members are contracted through a staffing agency, and they are being paid by the agency and taxes are being taken out, then the senior care community isn’t paying those individuals directly, which reduces the risk.

What Senior Care Communities Should Do to Prepare for the Rule’s Implementation

Weiner explains that whenever there is a change in a state or federal law, senior care communities should consult with legal counsel to make sure their systems will abide by those new laws. It’s also important for each senior care community to review their current arrangements with workers. “Everything should be looked at on a case-by-case basis,” he says.

Weiner always encourages clients to classify workers as an employee. “I work primarily in the state of New Jersey, which employs the ABC test,” says Weiner. “It’s a very stringent test and presumes if someone is providing services for pay, they’re an employee. The burden of proof is on the employer. I don’t ignore, but I stay away from the USDOL rules, because if you can satisfy the ABC test, you’re going to satisfy the DOL rule in most instances.”

Several lawsuits have already been filed against the USDOL which could potentially delay the rule’s implementation, but Weiner advises senior care communities to be prepared for it to be implemented on March 11^th. “Employers should take steps to make sure their policies and procedures are in compliance even if a lawsuit is filed or an injunction is issued,” he says. “That’s only temporary. No matter the likelihood of that happening, you should always assume that the rule should go into effect.”

Paige Cerulli

Paige Cerulli is a contributing writer to i Advance Senior Care.