Tuesday’s release of a final rule on worker classification standards surely will trigger many a call to HR for a policy rewrite. And perhaps to legal counsel for advice on how to react.

According to federal regulators, the updated standards promise to bring clarity to the often murky distinction between independent contractors and employees.

Clearly, regulators feel that too many senior living operators — and employers in general, for that matter — are using the “independent” label to identify workers who should rightfully be considered employees.

Specifically, the new rule adjusts the method of analysis and adds criteria for determining which bucket a worker should be placed into.

The Labor Department asserts that the new rule will take a more “holistic” approach that encompasses additional factors and weighs them more evenly in the decision-making process.

But as so often is the case, operators are pushing back against an official narrative that seems to promise help while ignoring burdens.

“We are concerned that the rule, coupled with other proposed federal regulations, will only serve to exacerbate the workforce shortage and wipe out some of the recent modest gains communities have made in recruiting individuals to help care for our seniors,” Argentum Senior Vice President of Public Policy Maggie Elehwany told McKnight’s Senior Living.

Additionally, the changes may place greater legal and financial burdens on senior living operators, suggested Gerald Maatman Jr., partner and chair of the class action practice group at legal firm Duane Morris.

Maatman suggests that implementation of the rule may well prompt more wage and hour misclassification class action litigation in the sector.

Remember that famous line: “I’m from the government and I’m here to help you”?

I guess you could say it took on a whole new meaning this week. Or that at the very least, the old meaning was freshened up.

John O’Connor is editorial director for McKnight’s Senior Living and its sister media brands, McKnight’s Long-Term Care News, which focuses on skilled nursing, and McKnight’s Home Care. Read more of his columns here.

A large national trade group advocating for senior living and other long-term care providers is urging its members to “carefully evaluate their existing classifications” of workers following the Tuesday announcement of a new federal rule pertaining to independent contractors.

“The Department of Labor has put a strong emphasis on ensuring proper classification, and we can expect those efforts to continue,” LeadingAge Vice President of Legal Affairs Jonathan Lips told McKnight’s Senior Living on Tuesday. “Now that the final rule is released, we are carefully reviewing the content and its implications for providers and urge our members to carefully evaluate their existing classifications based on the new regulations.”

The rule comes as senior living providers continue to face workforce shortages and sometimes turn to staffing agencies for help.

Another association, Argentum, said that the rule “unfortunately” will result in many workers being unfairly classified as employees and “depriving them of their choice of the manner in which they wish to work.”

“The senior living industry lost hundreds of thousands of jobs during the pandemic, and while the situation is gradually improving, many communities are still struggling to recruit, hire and retain employees,” Argentum Senior Vice President of Public Policy Maggie Elehwany told McKnight’s Senior Living. “We are concerned that the rule, coupled with other proposed federal regulations, will only serve to exacerbate the workforce shortage and wipe out some of the recent modest gains communities have made in recruiting individuals to help care for our seniors.”

Additional experts are concerned that providers will face greater legal and financial burdens under the rule.

The US Department of Labor announced the final rule Tuesday morning, clarifying its interpretation of the Fair Labor Standards Act’s classification of workers as independent contractors. The final rule largely mirror’s the rule it proposed in October 2022, retaining the framework it laid out for determining independent contractor status versus employee status. 

The new rule restores the multifactor analysis to determine independent contractor status, including any opportunity for profit or loss a worker might have; the financial nature of any resources a worker invested in the work; the degree of permanence of the work relationship; the degree of control and employer has over someone’s work; whether the work done is essential to the employer’s business; and a worker’s skill and initiative.

That “control” piece is something senior living and care providers will be reviewing carefully. 

The DOL said that the new rule will provide “a consistent approach for businesses that engage with individuals who are in business for themselves” and ensure that “employers that comply with the law are not placed at a competitive disadvantage when competing against employers that misclassify employees.”

The US Chamber of Commerce, a national business advocacy organization, called the new regulation “harmful” and “clearly biased” toward labeling most independent contractors as employees, a move it said will “decrease flexibility and opportunity and result in lost earning opportunities for millions of Americans.”

“It threatens the flexibility of individuals to work when and how they want and could have significant negative impacts on our economy,” Chamber Vice President of Workplace Policy Marc Freedman said in a statement. “Making matters worse, the rule is completely unnecessary, as the department continues to report success in cracking down on bad actors that are misclassifying workers.”

Indeed, the Department of Labor frequently reports on employers who pay the price for misclassifying workers as independent contractors rather than employees. In September, for instance, the department reported that a Pittsburgh-based healthcare services provider for people living with dementia or disabilities misclassified two workers as independent contractors, resulting in a recovery of $98,620 in back wages by the federal government. And in 2022, an investigation into a Lansing, MI, adult foster care company’s practice of treating its residential healthcare workers as independent contractors cost it $94,000 in back wages.

In a blog post, law firm Fisher Phillips noted that the DOL’s test applies only to the FLSA and that many states apply their own tests to state-level wage and hour claims. Although some state laws protect the independent contractor relationships if certain criteria are met, other state laws make it more difficult to establish such relationships, the firm said.

Fisher Phillips added that under the new rule, “the risk of misclassification will skyrocket,” with more employers facing potential liability for not paying minimum wage and overtime premiums to their workers.

“The ramifications can be staggering — class-action lawsuits, large settlement demands, backpay, liquidated damages, interst, penalties and attorneys’ fees can all quickly add up,” the authors wrote.

Fisher Phillips suggested that businesses using independent contractors conduct internal audits to assess their risk level for misclassification, update policies and procedures, train managers and work with counsel to evaluate programs and minimize risks.

The new rule rescinds one issued during the final days of the Trump administration in January 2021. The Labor Department under the Biden administration had sought to delay the rule, and then withdrew it in May 2021, believing that it was inconsistent with the FLSA’s text and purpose. A district court, however, in March 2022 determined that the rule had taken effect on its original effective date and remained in effect.

In June 2022, the DOL announced plans to hold public forums to gather feedback on writing a new rule. A proposed rule was issued in October of that year, and the department said it received more than 55,000 comments on the proposal during the comment period and listening sessions. 

The final rule will be published today in the Federal Register (see a PDF here) and will take effect March 11. 

The Labor Department has published answers to frequently asked questions on its website.

For more coverage of the rule, see McKnight’s Long-Term Care News and McKnight’s Home Care.

The Department of Labor this morning issued a final rule that will change how senior living companies and other employers determine who is an employee and who is an independent contractor.

The rule is effective March 11.

“The misclassification of employees as independent contractors may deny workers minimum wage, overtime pay and other protections,” the Labor Department said in an online post. “This final rule will reduce the risk that employees are misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves.”

The rule also ensures that “employers that comply with the law are not placed at a competitive disadvantage when competing against employers that misclassify employees,” the department said in an email. 

According to the DOL, the final rule:

• Restores the multifactor, totality-of-the-circumstances analysis to assess whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. 
• Ensures that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors. 
• Uses the longstanding interpretation of the economic reality factors. Those factors include opportunity for profit or loss depending on managerial skill, investments by the worker and the potential employer, the degree of permanence of the work relationship, the nature and degree of control, the extent to which the work performed is an integral part of the potential employer’s business, and the worker’s skill and initiative.

The new rule also rescinds one issued during the final days of the Trump administration in January 2021. The Labor Department under the Biden administration had sought to delay the rule, and then withdrew it in May 2021, believing that it was inconsistent with the FLSA’s text and purpose. A district court, however, in March 2022 determined that the rule had taken effect on its original effective date and remained in effect.

That rule, Solicitor of Labor Seema Nanda said at the time, “legally risked increasing instead of reducing misclassifications because it narrowed the facts and basis for determining whether a worker is an employee under the FLSA” and was ”out of sync” with what the courts had been saying for decades.

In June 2022, the DOL announced plans to hold public forums to gather feedback on writing a new rule. A proposed rule was issued in October of that year.

Tuesday, the Labor Department said it had received “thousands of comments from a diverse array of stakeholders that helped inform the regulatory updates” during a comment period that was open through November 2022.

The rule issued Tuesday has not been published in the Federal Register yet but is available as a PDF. Read it here.

Editor’s note, Jan. 10: Read the follow-up story with industry reaction here.

A Pittsburgh-based healthcare services provider for people living with dementia or disabilities misclassified two workers as independent contractors, resulting in a recovery of $98,620 in back wages by the federal government.

Due to the misclassification, Sunrise Residential Care Services did not pay the workers an overtime premium, according to the US Department of Labor’s Wage and Hour Division. Sunrise also did not maintain a record of daily and weekly hours worked or identify accurate pay rates on payroll records for the two employees, the DOL stated.

As a result, the department recovered $49,310 in back wages, and the same amount in liquidated damages. 

Sunrise operates 10 residences in the greater Pittsburgh area.

“Failing to properly classify workers as employees and not independent contractors denies them from receiving all of their hard-earned wages, benefits and protections under federal law,” Wage and Hour Division District Director John DuMont said in a statement. “We can assist employers and workers in determining if a worker should be classified as an independent contractor or as an employee.”

The Labor Department is expected to publish a final rule on independent contractor status in October, five months later than previously planned. The proposed rule would more strictly limit how healthcare and other employers classify workers who are paid on an hourly basis under the Fair Labor Standards Act.

A coalition of 17 healthcare associations earlier this year urged the DOL to exempt long-term care and other healthcare providers from the proposed rule. The group called the rule “problematic” and said it could exacerbate ongoing labor shortages across the industry. The organizations urged the federal government to reevaluate the rule with healthcare in mind. 

The rule would set a salary threshold that employees would use to determine which employees are eligible to receive overtime pay when they work more than 40 hours per week. The current threshold, enacted during the Trump administration, became effective in January 2020, when the weekly minimum salary for overtime exemptions rose from $455 per week ($23,660 per year) to $684 per week ($35,568 per year).

Employers have waited a long time to see how the federal government wants to update the rule.

The Labor Department first formally listed the publication of a new overtime final rule in its regulatory agenda in fall 2021, according to the National Review, and then spent several months holding virtual town halls to gather initial input from stakeholders for a proposed rule that was expected to be published in spring 2022.

Some speculate that the delay may be due, in part, to the vacancy for the position of secretary of labor. Acting Secretary Julie Su has been nominated for the post. 

Speaking at the SHRM Annual Conference & Expo 2023 in Las Vegas, Robert Boonin, an attorney with Dykema in Ann Arbor, MI, told attendees that he “thought the DOL may be planning more aggressive changes with the new rule than in its previous revisions.”

Additionally, the overtime rule is said to be facing some legal challenges that might compound the delay of publication. For example, according to SHRM, courts might question the Labor Department’s authority to set a salary level threshold to be exempt.

Separately, the Labor Department also has delayed publishing a final rule on independent contractor status. The rule now is expected to be published in October, five months later than previously planned.

Voting along party lines, the board reinstated an Obama-era independent contractor test. The result contradicts a more employer-friendly position that was adopted during the Trump administration. As for the Trump administration’s ruling, that, too, was a flip flop.

This week’s development is important, and from a senior living operator’s perspective, potentially dangerous. For it increases the number of workers covered by federal labor law (employees) from those who are not (independent contractors). At the very least, it will make it easier for reclassified workers to unionize or sue for unsafe working conditions.

Not that such things could ever happen in this field.

Like so many other political debates we are seeing, this one boils down to people with differing allegiances looking at the same facts and drawing different conclusions. Here’s what I mean:

Both sides have adopted the same 10 factors as benchmarks. They are:

• The extent of control the employer has over the worker
• Whether the worker is engaged in a distinct job or business
• The kind of job the worker has, with reference to whether the work is usually done under the direction of the employer or by an unsupervised specialist
• The skill required in the particular job
• Whether the instrumentalities, tools and place of work are provided by the employer or the worker
• The length of time the person works for the employer
• The method of payment
• Whether the work is part of the employer’s regular business
• Whether the parties believe they are creating a master and servant relationship
• Whether the principal is in the business

That would seem to be cut-and-dried, right? Not so fast.

What these come down to is the extent of an employer’s control over an individual’s work. And that’s where views are anything but unified. Of special note here is the concept of “entrepreneurial freedom.” In other words, to what extent is the person in question running an independent business subject to unique losses or gains?

Democrats generally feel that entrepreneurial freedom applies to far fewer workers than do Republicans, and that more people, therefore, should be classified as employees, not independent contractors. And as it happens, Democrats currently control the White House.

My advice to senior living operators who find this latest ruling partisan and completely unfair? It’s simple, really: Show a little patience.

John O’Connor is editorial director for McKnight’s Senior Living and its sister media brands, McKnight’s Long-Term Care News, which focuses on skilled nursing, and McKnight’s Home Care. Read more of his columns here.

The new NLRB ruling overturns a Trump-era standard that was thought to favor business owners.

Under the ruling, according to the board, the board will consider entrepreneurial opportunity along with the traditional common-law factors by asking whether the evidence tends to show that a supposed independent contractor is, in fact, rendering services as part of an independent business. The board, however, expressly rejected the previous holding from the SuperShuttle case that entrepreneurial opportunity for gain or loss should be the “animating principle” of the independent-contractor test.

“In today’s decision, the Board returns to the independent contractor test articulated in FedEx II, and reaffirms the Board’s commitment to the core common-law principles that the Supreme Court has determined should guide the Board’s consideration of questions involving employee status,” Chairman Lauren McFerran said in a statement. “Applying this clear standard will ensure that workers who seek to organize or exercise their rights under the National Labor Relations Act are not improperly excluded from its protections.”

Members Gwynne E. Wilcox and David M. Prouty joined McFerran in issuing the decision. Member Marvin E. Kaplan agreed with the majority in part and dissented in part.

The standard only applies to employees covered by federal labor law.

Labor Department

Separately, the Labor Department has delayed publishing its final rule on independent contractor status. The rule now is expected to be published in October, five months later than previously planned.

“In a court filing Friday, attorneys for the DOL asked the Fifth Circuit Court of Appeals to continue its pause on litigation over an earlier attempt by the Biden DOL to regulate independent contractor status, so that it can finish its newest rulemaking on the issue,” Bloomberg Law reported. 

The proposed rule would more strictly limit how healthcare and other employers classify workers who are paid on an hourly basis.