A proposed rule change by the U.S. Department of Labor is designed to target employee misclassification.

The proposed rule change would rescind a Trump-era rule from 2021.

Jessica Looman, Principal Deputy Administrator at the DOL, announced the DOL plans to place an emphasis on protecting low-wage workers from being misclassified as independent contractors.

Among the industries the rule is expected to affect are construction, healthcare, trucking, food service and retail.

Solicitor of Labor Seema Nanda called the 2021 Independent Contractor Rule “out of sync” with how courts decided worker misclassification cases for decades.

The new proposed rule would rescind the current two-factor standard implemented by the Trump DOL. The current standard only factors the nature and degree of a worker’s control over the work and the opportunity for profit or loss, based on initiative, investment or both.

Under the new proposed rule, the DOL would use six different factors to determine worker misclassification.

The first factor is the opportunity for profit or loss, depending on managerial skill.

According to the proposed rule, the opportunity for profit or loss factor, “weighs toward the individual being an employee to the extent the individual is unable to affect his or her earnings or is only able to do so by working more hours or faster.”

Investments by the worker and the employer are the second factor.

The DOL proposes to treat investment as a standalone factor in the economic reality analysis instead of considering investment within the opportunity for profit or loss factor.

An investment borne by the worker must be capital or entrepreneurial in nature to indicate independent contractor status, so purchasing tools or equipment would not qualify.

The third factor is the degree of permanence of the work relationship. The proposal states the DOL believes an exclusivity requirement imposed by the employer is a strong indicator of control.

Nature and degree of control is the fourth factor.

The DOL believes that issues related to scheduling, supervision over the performance of the work (including the ability to assign work) and the worker’s ability to work for others are relevant considerations when determining if a worker is an independent contractor.

The fifth factor is the extent to which the work performed is an integral part of the employer’s business.

It considers whether the work is critical, necessary or central to the employer’s business and better reflects the economic reality of case law.

The final factor is skill and initiative.

This factor considers whether a worker uses specialized skills to perform the work and whether those skills contribute to a business-like initiative that is consistent with the worker being in business for themself instead of being economically dependent on the employer.

During the announcement, Looman stated the distinction between employee and independent contractor is especially important to the construction industry.

She noted that unscrupulous employers who misclassify employees as independent contractors harm not only the worker and their families, but other businesses that follow the rules.

When an employer misclassifies a worker, it reduces labor costs and prevents the worker from properly collecting minimum wage, benefits, overtime and medical or family leave that they may be owed.

A misclassified worker is also on the hook for paying additional taxes and workers’ compensation insurance, that would be paid by an employer.

According to Construction Dive, Associated Building and Contractors Vice President of Regulatory, Labor and State Affairs Ben Brubeck issued a statement that said the organization “vehemently opposed the rule change” and would challenge the DOL if it “undermined independent contractors.”