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Implications of USDOL Proposed Rule Changes on Independent Contractors

November 14, 2022

Note: You can submit a comment in opposition to these rules. Click here for details.

Growing concern over the future strength of the economy.  Increasing regulatory and compliance burdens and risks.  Rising cost of capital and unprecedented inflation.  These are some of the major challenges that small businesses throughout Michigan and the country are facing as they chart a path forward into the next phase of the pandemic recovery process.

However, the one challenge that seems to be universal for all small businesses regardless of industry type is the extreme difficulty in finding and retaining workers.   It has been widely reported in the media and has created new ubiquitous phrases like the “Great Resignation” and “Quiet Quitting”.  This challenge has resulted in small businesses innovating to create new ways to find workers, to pilot new corporate organizational structures to get work done and to adopt flexible and hybrid work options to meet lifestyle options and preferences of all workers.

Unfortunately, small businesses may be in for additional strong headwinds in 2023 related to how workers can be engaged to support the enterprise.  On October 13, 2022, the Wage and Hour Division of the U.S. Department of Labor issued a lengthy and sweeping proposal on how businesses can classify workers. 

It is imperative that small businesses understand the implications of this proposal to the employment landscape, have their voice heard during the comment period which now extends until December 13, 2022, and seek to ensure that this proposal is not enacted as currently drafted.

From an overall policy and operational standpoint, the proposed rule is not favorable to small businesses that need to remain flexible, adaptable and nimble and such rule also severely limits the flexibility sought by many workers to meet their desired lifestyle and work-life balance. 

The key macro concerns for small businesses related to this proposed rule are:

  1. It significantly changes existing regulations which in turn injects another layer of uncertainty for small businesses already grappling with unprecedented issues engaging workers to maintain and grow their businesses.
  • It increases operating costs for small businesses to develop and maintain compliance processes while increasing the financial risk to small businesses who may inadvertently misclassify workers.
  • It most likely leads to an increase in enforcement actions requiring a small businesses to allocate scarce resources to respond to such actions.
  • It decreases the ability for small businesses to engage workers on a flexible basis which is paramount to growing in the current operating environment.
  • It runs counter to the work-life flexibility desired by a substantial segment of the worker population particularly in a post-pandemic world.
  • It adopts a one-size-fits all approach regardless of industry and the proposed classification test incorporates a substantial amount of subjectivity in its application while empowering the agency with a significant amount of discretion in making its determination.

The Small Business Association of Michigan (SBAM) will continue to monitor this proposed rule and provide next-level analysis of the impact of this policy on small businesses in the coming weeks and months.  As always, SBAM welcomes your input so please let us know your thoughts.

Author Byline:

David Galbenski is a Michigan entrepreneur and lawyer.  He founded Lumen Legal in 1993 and scaled it into a leading national legal staffing and outsourcing company prior to successfully selling in July of 2020 to Lexitas.  He is a two-time Inc. 500 recipient, former Ernst & Young Entrepreneur of the Year award winner and former Chairperson of the Entrepreneurs’ Organization, a global network of 16,000+ entrepreneurs.

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