On March 11, 2024, the U.S. Department of Labor’s (DOL) new rule for determining whether an employee is an independent contractor is scheduled to take effect. Health care and trucking industries that are heavily reliant on independent contractors are likely to experience disruptions in the labor supply and an increase in wages. Let’s dive into this to determine the implications this might have for small business owners.
Understanding The New Rule
The new rule reinstates an earlier standard that requires companies to collectively consider various economic factors to determine a worker’s classification as a W-2 employee or an independent contractor using a 1099 form. This shift rescinds the 2021 ruling, which placed greater emphasis on two factors:
- Control over the work
- Opportunity for profit or loss
The totality-of-the-circumstances analysis now incorporates the worker’s skill and initiative, the permanence of the working relationship, the worker’s investment in equipment or materials, and the extent to which the service rendered is integral to the employer’s business.
Impact On The Health Care Industry
The implications of the new rule on the health care industry are multifaceted, particularly for nurses and home health aides who commonly work for multiple staffing agencies. The independent contractor status has been a longstanding issue in this sector, and the new rule is expected to prompt staffing agencies and health care facilities to reassess their utilization of the 1099 model. In addition, the shortage of nurses and home health aides adds another layer of implications for this industry. This was caused by the early retirements during the COVID-19 pandemic and the increasing medical needs of Baby Boomers, further intensifying the urgency for employers to address labor classification and retention challenges. Approximately 100,000 registered nurses in the U.S. left the workplace due to the stresses of the COVID-19 pandemic. By 2027, almost 900,000, or almost one-fifth of 4.5 million registered nurses in the U.S., intend to leave the workforce.
Impact On The Trucking Industry
Similarly, the trucking industry anticipates significant repercussions from the new rule. The classification of truckers as independent contractors, a prevalent practice in the industry, may require a fundamental restructuring of the business model should they be reclassified as employees.
For trucking companies, the prospect of reclassifying truckers as employees presents logistical and financial complexities. With many drivers renting trucks from the companies they deliver goods for, distinguishing between an independent contractor and employee status becomes critical. The ownership and usage of the vehicle, along with considerations of investment and opportunity for profit or loss, are central to the classification under the new rule.
Economic Implications
The potential reclassification of health care and trucking workers has far-reaching economic implications. Notably, the new rule is anticipated to escalate labor costs for companies, which could subsequently be passed on to consumers. In addition, if reclassified as employees, the impact on overtime pay for truckers is poised to become a significant issue given the industry’s long working hours and the entitlement to overtime pay for nonexempt workers. Under the Fair Labor Standards Act (FLSA), nonexempt employees are entitled to overtime pay, but independent contractors are not.
The Assistance Of A PEO
Amidst the evolving regulatory landscape and the DOL’s new rule for determining worker classification in industries such as health care and trucking, small business owners can seek support and guidance from a professional employer organization (PEO) like GMS. Partnering with GMS gives small business owners access to expert HR support, risk mitigation, compliance expertise, and talent management services, enabling them to navigate this new rule's complex implications. In addition, GMS offers payroll and tax filing, benefits administration, compliance support, risk and safety management, and HR services, allowing business owners to focus on their core competencies. If you have a business in one of these industries, partnering with GMS is a crucial resource for you, ultimately offering you peace of mind and strategic support with evolving rules and regulations. We work with many health care and trucking companies to ensure they remain compliant and feel supported during these times of uncertainty. Interested in learning more? Contact us today to learn more.