Last month, the US Department of Labor proposed changes to the Fair Labor Standards Act (FLSA) that would drive up costs and crush entrepreneurs in the gig economy, our nation’s small business community. Although the FLSA governs regulations for employees related to matters such as minimum wage, overtime, and record keeping, the rules and regulations previously did not apply to individuals classified as independent contractors. Under current rules, the parameters used to classify an individual as an employee, or an independent contractor, are relatively simple and clearly defined.
The proposed rule drastically changes the current tests used to determine whether an individual must be classified as an employee rather than as an independent contractor under the FLSA. Unlike the current rule set, the proposed rule attempts to expand the definition of an employee through the use of arbitrary, overly broad, and highly subjective language. The proposed rule would impose a new, six-factor test to determine whether an employer is “economically dependent” on an employer under the “totality of the circumstances.” Additionally, there is no predetermined weighting for each test. Fail one of the six tests and the individual worker can be reclassified as an employee by the federal bureaucracy.
Still confused? Well, you should, because the parameters of this proposed rule are extremely misleading and will pull the rug out from our small businesses and independent contractors who are doing well under the existing rules. That’s why the Michigan Small Business Association, of which I’ve been an active member for many years and served as its board chair, is advocating strongly against this rule change and encourages small business owners and allies across the state to join us.
Our opposition must be strong because if the legislation is enacted, the real pain will be felt by countless small businesses whose operations depend on hiring independent contractors. Small businesses routinely hire independent contractors to provide a myriad of services. Facilities maintenance, delivery, bookkeeping, graphic design, digital marketing, and web development are just a few examples.
Independent contractors provide the timely and scalable services that small businesses need to serve their customers or support their organizations. This symbiotic relationship accomplishes two things. 1) Small businesses get the services they need at an affordable rate that is driven by market forces, and 2) independent contractors get fair, market-based compensation for their efforts while setting their own work terms, pricing, and work schedules. It’s a real “win-win”.
Consider for a moment the real-life example of Dominique, a freelance artist working as an independent contractor hoping to turn her small clients into a sustainable small business. My company employs Dominic as an independent contractor to meet our clients’ design needs. She likes being an independent contractor because it gives her the freedom to work from home and the flexibility she needs to meet the demands of her family’s schedule.
Under the proposed rule, if any of the six-factor tests are not fully satisfied, Dominic could be classified by the government as an “employee” of my small business. This would only serve to increase my operating costs as I would have to absorb the administrative, wage, benefit and tax costs associated with bringing on additional employees. This would be especially expensive for my business because my need for design services is intermittent The symbiotic relationship between my business and Dominic,
The independent contractor will be destroyed, not by market forces, but by arbitrary regulations imposed through an overly broad, highly subjective bureaucratic regime.
The proposed rule would force Dominic to abandon his dreams of being his own boss, follow his own path, make his own, and do what he thinks is in the best interest of his family. Although he is willing to accept the economic risks associated with building his business, he will be denied the opportunity to satisfy the government’s subjective rules.
The bottom line is that the proposed USDOL rule is bad for small businesses and will severely hamper our nation’s entrepreneurial spirit. Please help us stop this rule by visiting sbam.org by November 28 and submitting a public comment to the USDOL. Before Michigan’s small businesses are hurt, the proposed rule should be rejected without exception.
— David Roa is a serial entrepreneur, owning and operating multiple businesses. David is an advocate for small business, writing and speaking on small business tax policy and small business labor policy at both the state and federal levels.