The administration of US President Joe Biden will issue a final regulation this week that would make it more difficult for businesses to treat people as independent contractors rather than employees, which normally cost a company more, according to an administration official.

The U.S. Department of Labour rule, which was initially suggested in 2022 and is expected to face court challenges, will require workers to be deemed employees with higher benefits and legal protections than contractors when they are “economically dependent” on a corporation.

The law, which will go into effect later this year, will certainly affect a wide range of businesses, but its potential impact on app-based services that rely largely on contract labour has received the most attention.

When the draft rule was proposed in October 2022, Uber Technologies, Lyft, and DoorDash all saw their stock prices fall by at least 10%.

On Monday, DoorDash shares closed nearly 4% higher at $98.52, while Lyft shares rose 5.8% to $13.55, and Uber stock rose 2.5% to $59.01.

According to Marc Freedman, vice president of the United States Chamber of Commerce, the country’s largest business group, the law will most likely reduce workers’ flexibility, resulting in lost opportunities to earn money.

“It is likely to threaten the flexibility of individuals to work when and how they want and could have significant negative impacts on our economy,” Freedman said in a statement.

In a draft version of the rule in 2022, the Labour Department stated it would evaluate elements such as a worker’s “opportunity for profit or loss, investment, permanency, the degree of control by the employer over the worker, (and) whether the work is an integral part of the employer’s business.”

The rule supersedes a Trump administration guideline that stated that individuals who own their own businesses or have the potential to work for competing organisations, such as an Uber and Lyft driver, can be classified as contractors.

Legal experts predict that the department’s significant departure from Trump-era regulations will be the subject of lawsuits contesting the new rule.

Federal law requires agencies to provide a sufficient explanation for their decision to withdraw and replace existing rules.

The Biden administration claimed that the Trump-era rule violated US wage laws and was inconsistent with decades of federal court judgements, while labour activists argued that a stricter criterion was required to prevent widespread worker misclassification in particular industries.

According to a report released last year by the left-leaning Economic Policy Institute, a truck driver treated as a contractor earns up to $18,000 less per year than an employee, while construction workers’ earnings drop by nearly $17,000 and home health aides lose up to $9,500 in pay and benefits.

Following its proposal, business organisations harshly criticised the draft rule. Any legislative change is projected to raise labour costs in numerous industries, including trucking, retail, and manufacturing.

Most federal and state labour rules, such as those demanding a minimum salary and overtime pay, only apply to employees, who, according to studies, can cost businesses up to 30% more than independent contractors.

According to a December poll conducted by freelancing marketplace Upwork, nearly 40% of US workers, or more than 64 million people, had done some freelance work in the last year.

(Adapted from BusinessToday.in)

Categories: Economy & Finance, Entrepreneurship, Regulations & Legal