It’s been over three months since the DOL released an amended rule explaining how workers must be classified under the Fair Labor Standards Act (FLSA). Should employers classify them as independent contractors or treat them as employees with hourly wages? This rule came into effect on March 11 and will deeply impact home care providers.

Let’s examine the DOL’s new rule—dubbed the ‘Final Rule’—and its financial implications for home health agencies. We’ll also address its future. Is it really final, or will it be changed in the future? What penalties can you expect in case you misclassify contractors? This opinion piece will be critical of the new rule and side with the concerns many home care agencies have regarding the DOL’s latest publication.

Understanding the ‘Prior Rule’

The Final Rule has replaced the Trump administration’s ‘Prior Rule,’ the first one that formally addressed independent contractor classification. It aimed to create a standard and consistent set of criteria for identifying contractors, effectively distinguishing them from salaried workers.

Hailed as a much more employer-friendly rule, it highlighted five factors that helped a business—for instance, home care agencies—determine whether employees are company employees or independent contractors. We’ll go through these factors in the next section.

It shouldn’t be ignored that home care agencies work as a bridge between clients and nursing contractors. However, hiring an independent contractor makes home health agencies responsible for taxes and other obligations associated with that nursing contractor. The Final Rule has made this issue much more difficult to understand.

Making Sense of the ‘Final Rule’

Under the Biden administration, the Labor Department reverted the Prior Rule and, in its place, introduced the Final Rule. It is a major shift from the Prior Rule in two regards:

• It replaced the Prior Rule’s five-factor test with a six-factor one
• Unlike the Prior Rule, it doesn’t focus on any two factors as the core ones
• The Prior Rule’s employer-friendly tone has changed into a pro-employee one

In short, the Final Rule relies on a person’s activity as a whole to decide if they are an employee or better identified as a contractor. You may call it a totality-of-the-circumstances analysis. The six new factors introduced thereby are as follows:

1. The nature and degree of control the employer has over the work to be done
2. The person’s opportunity for profit or loss
3. The  degree of durability and permanence of the job
4. The person’s skill and initiative
5. The extent to which their work is integral to the employer’s business
6. The person’s and the employer’s investments

The first two were the core factors in the Prior Rule. The sixth factor is innovation, which is brought up in the Final Rule. It determines how much your contract-based nurses or home health aides, for instance, depend financially on you as their employer. And it’s the sixth factor that will ultimately decide the true classification of your workers.

Impact of the Final Rule on Home Care Agencies

The introduction of the Final Rule resulted in public outcry as gig industry veterans criticized it as a major blow to their trade. In the words of certain home health agency owners, “[the new] proposal makes independent contractor classification much more challenging and less clear, which will lead to a significant increase in legal challenges with no benefit to safety.”

Similarly, the degree of control of the employee is now a major factor in determining whether a person is an employee or an independent contractor. For instance, it’s fine if you ask someone to undergo training needed for relevant caregiver certificates. But if you require them to fulfill more comprehensive training, it implies exercising control. In this context, the role of a medical director becomes crucial in ensuring that training and supervision comply with the new regulations without misclassifying workers.

If you exert more control over them, it makes them your employees, not to be misclassified as an independent contractor.

Also, another question arises in this debate about whether the nursing professionals or home health aides you hire are integral to your business or whether the work they do is important for business functioning. Can they set their own rates? Can they negotiate their charges? Can they choose to work elsewhere?

This is a significant shift from the Prior Rule, making it much harder for businesses to classify their workers as independent contractors accurately.

Financial Implications for Home Health Agencies

Another problem that arises with the Final Rule is the financial implications of putting workers in the wrong category. If a home healthcare service misclassified its workers, it may end up owing the government:

• Back taxes – usually to the IRS
• State unemployment taxes
• Back wages for the workforce’s overtime

Also, heavy fines are in order if homecare agencies are found guilty of misclassification. For instance, in some states, the penalty can go from $15,000 to $25,000, and that’s per a single violation. So, a business may find itself in a dire situation such as bankruptcy if it is deemed that multiple such violations have taken place since the day the new rule came into effect. It’s a grave concern for small businesses and all participants in the gig-based economy in 2024.

Similarly, if a home health agency provides health and welfare benefits, it may affect the recipients’ status, rendering them equal to workers in the eyes of the Department of Labor. These considerations from the Final Rule create a dubious business landscape for the home-based healthcare industry as a whole.

Is the Final Rule Actually Final?

The DOL maintains that this new rule isn’t supposed to “disrupt the business of independent contractors.” However, many independent healthcare providers have pointed out that the new rule has only made matters worse by creating confusion regarding employee classification.

Business groups are rallying against the Final Rule and attempting to get the DOL to revise it. Home health agencies rely heavily on nursing contractors, and other healthcare workers, so they must undergo an abrupt (and inconvenient) worker classification audit based on the six factors mentioned above. But they must also keep up the opposition and challenge this rule in court.

With enough opposition, the DOL may rescind the Final Rule and release a new set of criteria for worker classification.

Key Takeaways

The DOL’s ‘Final Rule’ was introduced first in January. Here’s what you should know about it:

• It addresses the issue of employee classification.
• It prevents businesses from misclassifying workers as contractors
• It provides a six-factor text to reduce misclassification
• It went into effect on March 11, 2024

However, the Final Rule’s pro-employee view hinders the proper functioning of home health agencies and other companies that rely heavily on contractors. This new rule will harm the industry by substantially changing and adversely affecting the gig economy. The DOL must pass a new rule that simplifies independent contractor classification.

Published by: Nelly Chavez