Employers facing new climate related to contingent workers

The debate over what makes a worker an employee versus an independent contractor has been raging for years—throughout presidential administrations of both political parties. Sometimes employers work under a strict interpretation of worker classification, but at other times, the definition of employee seems to ease a bit. Just days before the end of the Trump administration, the U.S. Department of Labor (DOL) published a rule making it easier to justify an independent contractor classification, but President Joe Biden's administration was able to freeze that rule since it had not yet taken effect. Signs point to stricter rules ahead even as the popularity of various kinds of contingent workers remains strong.

Understanding the difference

The distinction between employees and contractors is important because independent contractors aren't entitled to protections guaranteed by federal law for employees. Those protections include minimum wage, overtime pay, unemployment insurance, workers' compensation, and other benefits.

Employers see both pros and cons to the use of independent contractors. Since employers don't pay employment taxes or provide benefits to nonemployees, they often feel they can get work done cheaper with contractors than with a workforce made up entirely of payroll employees.

But employers also see downsides since the legal risk of misclassifying workers can be high and nonemployees may not be as available and committed as employees.