What is the difference between an employee and a contractor?

Independent contractors work for themselves. They have always existed, but they have come to occupy a larger share of the economy since the 2000s with the boom of app-based commerce and employment, according to Patricia Campos-Medina, executive director of the Worker Institute at Cornell University. In the 2000s and 2010s, as the app-based economy blossomed, “what we saw was an increased abuse of corporations failing to define workers as employees and defining them as independent contractors,” Campos-Medina said. An independent contractor should be someone who works for “a short period of time on a job that is not an integral part of your business model,” Campos-Medina said. “They come in to provide a skill or product that is not part of your routine business operations.” By contrast, an employee is an in-house worker for a company, person or small business, an arrangement that falls under myriad federal laws protecting that worker. Presidential administrations have spent the past decade playing legal tug-of-war over the distinction.

What would the proposed rule change?

The measure would add to standards used to distinguish between an employee and an independent contractor, revising a two-pronged approach enacted by the Trump administration that focuses on the degree of control workers have over their work and the opportunity for profit and loss, according to Adam Sencenbaugh, partner at law firm Haynes and Boone. That method makes it easier for employers to classify workers at independent contractors. Some factors that the new approach would consider include the skill required, the degree of permanence of the working relationship and how much the worker personally spends on equipment and materials. It would also look at how integral the work is to the employer’s business and whether it is carried out alongside other workers at the company. “It’s all ultimately answering the same question: ‘Is this person in business with themselves or dependent upon the company?’ ” Sencenbaugh said. The Biden administration’s approach seems to be “chipping away,” Sencenbaugh said, at criteria often cited by big companies to claim contractor status for workers, such as a person’s ability to work for multiple competing platforms at once and whether they use their own vehicle for work.

In 2021, 23.9 million Americans were “occasional independent workers,” according to Statista , while 17 million were full-time contractors. A 2021 survey from the Pew Research Center found that 16 percent of Americans had ever earned income from a gig platform through jobs such as driving for ride-hailing apps and delivering groceries or packages. But workers and labor advocates have been fighting for reform in the gig economy — which exploded in the pandemic — arguing that companies reap the rewards while failing to take care of their workers. “For years, gig corporations have exploited outdated labor laws to avoid all responsibility for their workers, who are primarily workers of color and immigrants,” Rondu Gantt, an Uber, Lyft and DoorDash driver with Gig Workers Rising , said in a statement. “This rule can help establish bedrock protections for app-based workers like me and give us an important tool to fight for respect and safety on the job.” It is a “fallacy” that most drivers want to remain independent contractors, according to Nicole Moore, president of labor group Rideshare Drivers United. The group has been working for years to form a union for drivers. Drivers for ride-hailing apps do not set their fees and lack the right to reject rides that lose money without being penalized, Moore said. “There is nothing independent about how we do the work,” Moore said. “The only right we have is to turn on the app when we want and turn off the app when we don’t want to work.” Moore said the Labor Department proposal was a “step in the right direction” but expressed concerns about enforcement. “This rule was in place when Uber and Lyft first started, but they had no intention of following it, and nobody enforced it,” Moore said.

What industries would be impacted?

Many companies rely on gig workers to staff their businesses, including drivers at Uber and Lyft and delivery workers for takeout and grocery apps. Freelancers also make up big shares of the workers in other industries, such as health care, construction, media and professional services, according to Camille Olson, legal counsel for the Coalition for Workforce Innovation, a business advocacy group whose members include Uber, Lyft and delivery company Gopuff. Olson described the gig economy as offering “almost unlimited opportunities for freedom and flexibility” for some workers. She rejected the Biden administration’s argument that many of these workers would want to be reclassified, since most independent contractors do not work enough to qualify for overtime and already make more than the minimum wage. “It will limit the opportunities for businesses to provide these flexible options,” Olson said, “which workers are saying over and over, ‘That’s what I want.’ ”

What would this mean for companies?

On the day the proposal was announced, shares of ride-hailing giants Lyft and Uber fell about 12 percent, although both companies dismissed the idea that the shift would threaten their business. In a blog post responding to the proposal, Lyft said it “does not force Lyft to change our business model.” The company said that 95 percent of its drivers work less than 20 hours per week. CR Wooters, Uber’s head of federal affairs, said in a statement that the proposed rule takes a “measured approach, essentially returning us to the Obama era, during which our industry grew exponentially.” But all sorts of companies that work with independent contractors are concerned about the proposal’s implications according to Edwin Egee, vice president of government relations at the National Retail Federation. “We think this adds a great deal of uncertainty and creates a lot of liability for our members when they work with independent contractors,” Egee said. “They’re going to have to make some changes.” The shift will require more time and resources for employers to make case-by-case decisions about workers, and to deal with legal challenges that are sure to pop up, Egee said. “It’s going to cost a lot of money,” Egee said. “And just like everything else, it’s going to be years and years of litigation to figure out where the line actually is.”

Economy

Biden wants to let gig workers be employees. Here’s why it matters.

Labor advocates say the measure would be a big win for workers. Companies say it would raise costs and create uncertainty.

By Taylor Telford

October 17, 2022 at 10:20 a.m. EDT

Delivery companies such as DoorDash rely heavily on independent contractors. (Andrew Kelly/Reuters)

The Labor Department has proposed a rule that would make it easier for delivery drivers, janitors, construction workers and other independent contractors to be considered employees, granting them access to benefits and federal labor protections.

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The proposal would overturn a Trump-era move and restore Obama-era standards for determining whether workers qualify as employees or independent contractors.

“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” Secretary of Labor Marty Walsh said in a statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”

Inflation is helping gig companies like Uber and hurting their workers

The proposal must face a public comment period and would take months to go into effect if approved. Companies that are dominant in the gig economy such as Lyft and Uber, whose business models revolve around independent contractors, oppose the change, saying it would be costly and create unnecessary complications.

Here’s what you need to know.