Independent Contractor Final Rule: Impact on IT/Engineering Staffing Industry
The Department of Labor on January 10, 2024, published a Final Rule essentially reinstating the pre-2021 regulation governing Independent Contractor (IC) status under the Fair Labor Standards Act. The new 2024 IC Rule is slated to go into effect on March 11, 2024; however, several industries have already filed suit to revive previous litigation aimed to maintain the 2021 Trump Administration IC regulation.
How will the new Rule impact the IT/Engineering staffing industry? The majority of IT/engineering staffing firm consultants are W2 employees. If the 2024 IC Rule goes into effect on March 11, the IT/engineering staffing industry’s use of independent contractor firms would be evaluated under a six-factor totality of the circumstances test, with each factor considered equally. Among the factors of this “economic realities” test are the worker’s control over the work, opportunity for profit or loss; and worker/employer investments. The 2024 IC Rule essentially reinstates the regulation in effect prior to 2021. Although the current rule is generally more favorable for businesses engaging ICs, it is not anticipated to have a significant impact on the use of ICs within IT staffing.
TechServe Alliance submitted comments in December 2022 supporting the 2021 IC Rule, noting that the existing guidance provides more clarity to ensure that the IT/Engineering staffing industry could engage highly skilled, independent contractor entrepreneurs to fill just-in-time, critical talent gaps without fear of erroneous misclassification penalties. The 2021 IC Rule, which remains in effect unless or until the 2024 IC Rule replaces it, focuses on worker control over their jobs and opportunities for profit and loss.
The Notice of Proposed Rulemaking for this now-2024 final rule included examples of how graphic designers, landscapers, a cook, healthcare workers, and farm workers could qualify as independent contractors. In response to DOL’s request for comments on this issue, TechServe urged DOL to provide examples of how knowledge workers would be eligible for independent contractor status.
CEO Mark Roberts stated, “At this time, we reassert our support for the 2021 Final Rule, which clarified worker classification for the IT/Engineering staffing industry. If the DOL finalizes the Proposed 2024 Rule, we urge the agency to incorporate more examples of independent contractor/employee status that pertain to knowledge workers, including but not limited to, IT and engineering consultants who offer their services as independent contractor firms.”
TechServe’s comments discussed the use of independent contractors within IT staffing and the application of the “totality of the circumstances” test. Unfortunately, the 2024 IC Rule did not include examples for how IC IT/engineering knowledge workers would clearly comply with the new rule.
As reported by Bloomberg Law, “The DOL’s rule doesn’t target or provide specific guidance for any particular industry or job type, said Wage and Hour Division Administrator Jessica Looman on the Monday evening press call.”
What’s Next? TechServe’s Government Affairs Team will continue to monitor the status of litigation contesting the 2024 IC Rule. In the meantime, TechServe members may want to review their policies for engaging independent contractor firms for compliance with the 2024 IC Rule pending the outcome of the litigation. We have provided a general overview of the new Rule’s requirements that may be helpful.
Additional Resources:
Department of Labor, Final Rule: Employer or Independent Contractor Classification Under the Fair Labor Standards Act, RIN 1235-AA43, January 9, 2024
Bloomberg Law, “Labor Department Cements Rule Change on Gig Worker Status,” January 10, 2024
Bloomberg Law, “Business Groups Seek to Block DOL’s Gig Worker Status Rule,” January 12, 2024
SHRM, “DOL Independent Contractor Rule Benefits Staffing Firms,” January 16, 2024
JDSupra, “DOL Restores Pre-2021 “Economic Realities” Test for Employee/Independent Contractor Classifications Under the FLSA,” January 23, 2024