A Look at the Economic Impacts of the DOL’s 2024 Independent Contractor Classification Rule

As of March 11, 2024, the Wage and Hour Division of the DOL released the Final Rule on how companies classify workers and independent contractors. The updated regulations replace the 2021 rule under the Fair Labor Standards Act. 

Independent contractors play a crucial role across numerous industries through specialized skills, flexibility, and cost-efficiency. Their contributions help businesses remain agile and responsive to evolving demands and specialized projects. 

There are a variety of employer obligations depending on whether the worker is classified as an employee or an independent contractor. Previously the rule weighed two factors as the most important: the nature and degree of control over the work and the opportunity for profit or loss. The new rule establishes and identifies six economic realities to determine this relationship. 1

Economic Realty Test Factors

1. The extent to which the work performed is an integral part of the employer's business
2. The opportunity for profit or loss depending on their managerial skill
3. The extent of the relative investments of the employer and the worker
4. Whether the work performed requires special skills and initiative
5. The permanency of the relationship
6. The degree of control exercised or retained by the employer

Based on if a contract worker falls into these six factors, there could be a costly change and increased risk in the employer’s risk management program. For example, if a worker is determined eligible for workers’ compensation benefits after a workplace injury, this will increase the cost of premiums and the risk of potential claims. 

How the Final Rule Impacts Texas Businesses and Contractors

While Texas is the only state that doesn’t require Workers' Compensation, from a risk management standpoint, having coverage benefits both the employer and employee because it protects the employer from legal repercussions and guarantees medical treatment for a worker should they be injured during the course and scope of employment. It remains to be seen how carriers will respond to the Final Rule when auditing policies, but we can expect this rule to guide standards and criteria moving forward both in Texas and on a national scale. 

Employers in Texas using contracted work abide by the Workers’ Compensation Agreement Forms (DWC083, DWC084, DWC085) to establish an independent working relationship. Employers should continue to use the applicable Agreement Forms and keep documentation while keeping in mind that there could be updates to the forms as the Final Rule is adopted federally. 

How Employers Can Protect Their Business 

1. Determine status of current contractors to establish if they should be classified as employees under the new rule based on the above six factors.
2. Determine with your Risk Advisor the best way to classify independent contractors under your workers’ compensation program and disclose the decision to the carriers.
3. Stay current on new state-specific regulations, especially wage & hour laws, resulting from the DOL’s new ruling.
4. Communicate with your Risk Advisor and Insurance Carrier to properly rate exposures and avoid costly and unexpected audits.
5. Review sub agreements with the Risk Advisor to ensure an acceptable risk transfer is in place.

Terms of Employment for Employees vs. Independent Contractor

If you have questions about how the Final Rule could impact your Workers’ Compensation policies, contact us at info@swinglecollins.com.