A new notice by the US department of labour proposing guidelines on how contractors are classified has led to concerned retailers feeling that the rule, which could result in more people being deemed employees instead of ‘independent contractors’ could increase costs for businesses as employees are granted federal protections like minimum wage and overtime.

When employers classify their workforce as contractors they are not under obligation to pay payroll taxes that fund Social Security or unemployment insurance programmes.

A new notice by the US department of labour proposing guidelines on how contractors are classified has led to concerned retailers feeling that the rule, which could result in more people being deemed employees instead of ‘independent contractors’ could increase costs for businesses as employees are granted federal protections like minimum wage and overtime.

The proposal is not expected to significantly affect textile and apparel workers in the country, according to a top US fashion news portal.

“The modern workplace is more complex in the wake of the pandemic. Retailers, along with countless other employers, maintain a wide range of business relationships with independent contractors, including billing, facility maintenance, data analysis, delivery, marketing and other critical services,” National Retail Federation senior vice president of government relations David French said.

“The current rules clearly define the difference between employees and independent contractors, providing much-needed legal certainty for employers, employees and independent contractors alike. The changes being proposed by the Labour Department will significantly increase costs for businesses across all industries, and further drive already rampant inflation,” he said.

“NRF staunchly opposes a change in this important area of law, which is both unwarranted and unnecessary. This decision will only foster massive confusion, endless litigation, reduced innovation and fewer opportunities for employees and independent contractors alike,” he added.

The proposed rule offers guidance on classifying workers and seeks to combat employee misclassification. Misclassification is a serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at-large, the labour department said.

“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” said secretary of labour Marty Walsh.

“Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification,” he added.

The proposed rule would align the department’s approach with courts’ Fair Labour Standards Act interpretation and the economic reality test; restore the multi-factor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA; ensure that all factors are analysed without assigning a predetermined weight to a particular factor or set of factors; revert to the longstanding interpretation of the economic reality factors; and assist with the proper classification of employees and independent contractors.

Fibre2Fashion News Desk (DS)