From the beginning of his candidacy, Donald Trump promised a significant departure from former President Barack Obama’s approach to labor and employment regulations. Six months into Trump’s presidency, we’re beginning to see what those changes could look like.
While the national conversation about reconfiguring labor regulations has, for the most part, been broad-based, the administration made headlines in June for withdrawing two Obama-era guidelines that aimed to more narrowly define independent contractors. The move away from these informal guidelines could have big implications for both small-business owners and freelancers -- and may signal the need for both groups to make strategic adjustments.
Background on the guidelines
Both of the now-abandoned guidelines were unveiled by the Department of Labor (DOL) to help clarify employer accountability in contract and dual-employer-based relationships. The first guideline -- released in July 2015 on a now-deleted page of the DOL’s website -- addressed the issue of misclassifying employees as independent contractors. In it, David Weil, then-Administrator of the DOL’s Wage and Hour division, stressed the need for a narrower definition of independent contractor to tackle growing problems with employee misclassification.
As Weil pointed out, businesses often classify workers as contractors on purpose in order to avoid paying unemployment insurance and overtime (both are required for those classified as fulltime employees). The guideline aimed to combat this problem by asserting that “Most workers are employees under the FLSA’s broad definitions,” and encouraging businesses to more qualitatively assess who are categorically employees as opposed to contractors.
The second guideline, released in February 2016, offered an expanded administrative interpretation of joint employer status. Like the July 2015 recommendation, the February release aimed to ensure greater accountability for employers by stating the importance of expanding the number of scenarios in which joint employer relationships exist.
When doing away with these recommendations, the DOL issued a brief press release in which it affirmed the informal nature of the recommendations and pointed out that enforcement of all relevant laws, including those under the FLSA, will not change.
Good news for employers, bad news for freelancers?
While the Trump administration's move away from the Obama-era recommendations doesn’t represent a concrete change to regulations, it does set a tone that could impact both small-business owners and, more notably, freelance workers.
For small-business owners, the withdrawal of these guidelines is advantageous. It suggests that business owners won’t face the same degree of federal administrative scrutiny when it comes to classifying their workers. Because of this, they may have more latitude to classify workers as freelancers who might otherwise be categorically employees (and therefore avoid certain employment expenses). That said, all businesses are still beholden to all existing regulations.
The move could be worse, though, for freelancers. As the July 2015 guideline asserted, most people classified as contractors should be classified as fulltime employees.
But, now that this guidance is off the table, freelancers will likely have to take a more direct and proactive role in ensuring their needs are met. If you make a living freelancing, consider adopting these best practices:
- Establish clear contracts: For all jobs, freelancers should draft contracts that clearly describe compensation structure as well as workplace protections. Getting these contracts authorized from the outset formalizes a work structure that can minimize potential disputes down the line. With a written contract, freelancers can secure key rights and protections such as the ability to delineate specific working hours and locations.
- Consider LLC status: As a freelancer, forming a limited liability company offers a tax-efficient legal structure that provides you with the operational latitude of a partnership and the liability elements of a business. Taking this step can help freelancers protect their personal assets in case of a lawsuit, but it’s important for freelancers to fully understand what LLC status entails before embarking on this path.
- Get insured: Independent contractors shouldn’t assume their clients’ insurance will cover them in the event of a qualifying incident. Instead, freelancers must make sure they’re fully covered no matter what a specific job provides. Insurance experts can be a pivotal resource in guiding freelancers to the precise insurance packages they need given their particular circumstances. Necessary policies will vary depending on geography and type of work, but two of the most helpful are general liability and professional liability insurance. Together, these can protect against many common claims freelancers face.
As policies surrounding labor laws and regulations change, it’s important for both small-business owners and freelancers to follow these developments closely and make strategic plans accordingly. For freelancers in particular, the Trump administration’s approach to contract-based work should signal a need to be even more proactive when it comes to establishing contracts and securing the right insurance.