Independent contractor rule would cost workers at least $3.7 billion annually

The U.S. Department of Labor’s (DOL) proposed independent contractor rule would make it easier for employers to classify workers as independent contractors, exacerbating already existing disparities in the labor market.

The rule would cost workers more than $3.7 billion annually — at least $400 million in new annual paperwork costs, and at least $3.3 billion every year in the form of reduced pay and benefits, says Heidi Shierholz, director of policy for the non-partisan Economic Policy Institute. Additionally, social insurance funds (Social Security, Medicare, Unemployment Insurance and Workers’ Compensation) would lose at least $750 million annually in the form of reduced employer contributions.

Shierholz notes that these estimates are conservative, and the true impact could be many times these numbers.

“It is disgraceful that during a deadly pandemic and a deep economic downturn that the Trump administration is choosing to spend its resources further weakening protections for millions of workers,” Shierholz said. “The Department of Labor is doing a disservice to its mission, and our country, by pursuing this agenda instead of providing much-needed protections to U.S. workers.”

The Fair Labor Standards Act (FLSA) is one of our nation’s fundamental worker protection statutes, provides wage and hour protections like the minimum wage and overtime to employees, but not independent contractors. The Trump DOL is attempting to narrow the broad definition of “employee” in the FLSA, Shierholz says, making it easier for firms to classify workers as independent contractors instead of as employees.

“This rule will cost workers billions of dollars annually and will cost the social insurance system hundreds of millions of dollars annually,” Shierholz said.

“Further, due to things like occupational segregation by race, discrimination, and other labor market disparities rooted in structural racism, Black and Latinx workers are more likely to work in the occupations affected by this rule. As a result, this rule would exacerbate existing racial disparities. It must not be finalized.”