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The USDOL regulation would decimate Michigan’s gig economy and drive up costs

Last month, the US Department of Labor proposed changes to the Fair Labor Standards Act (FLSA) that would decimate the gig economy, drive up costs for our nation’s small businesses, and crush entrepreneurs. While the FLSA regulates regulations for employees on issues such as minimum wage, overtime and record keeping, the rules and regulations have not previously applied to those classified as independent contractors. Under current regulations, the parameters for classifying a person as an employee or independent contractor are relatively simple and clearly defined.

The proposed rule drastically changes the current tests used to determine whether an individual should be classified as an employee rather than an independent contractor for the purposes of the FLSA. Unlike the current rule set, the proposed rule seeks to broaden the definition of an employee through the use of arbitrary, overly broad, and highly subjective language. The proposed rule would also introduce a new six-factor test to determine whether a person is “economically dependent” on an employer under the “all of the circumstances”. Also, there is no predetermined weight for each of the tests. If you fail any of the six tests, the individual worker could be classified as an employee by the federal bureaucracy.

Still confused? Well you should be because the parameters in this proposed rule are extremely confusing and will knock the ground out for our small businesses and independent contractors who are doing well under the existing rules. That’s why the Small Business Association of Michigan, of which I have been an active member for many years and of which I have served as Board Chairman, strongly opposes this rule change and encourages small business owners and allies across the state to join us.

Our opposition must be loud because if it were enacted, the real pain would be felt by the countless small businesses that depend on the involvement of independent contractors to operate. Small businesses regularly hire independent contractors to perform a variety of services. Facility maintenance, delivery, accounting, graphic design, digital marketing and web development are just a few examples.

Independent contractors provide the timely and scalable services small businesses need to serve their customers or support their organizations. This symbiotic relationship does two things. 1) The small business gets the services it needs at an affordable price determined by market forces, and 2) the independent contractor receives fair, market-based compensation for their efforts while setting their own working conditions, prices, and work schedule. It’s a real win-win situation.

Consider for a moment the real-life example of Dominique, a freelance artist working as an independent contractor hoping to grow her small group of clients into a sustainable small business. My company hires Dominique as an independent contractor to meet our clients’ design needs. She enjoys being an independent contractor as she has the freedom of working from home and the flexibility she needs to accommodate the demands of her family’s schedule.

If any of the six-factor tests under the proposed rule are not fully met, Dominique could be classified by the government as an “employee” of my small business. This will only serve to inflate my operating expenses as I will have to bear the administrative, payroll, benefits and tax costs associated with hiring an additional employee. This becomes particularly costly for my business as my need for design services is sporadic. The symbiotic relationship between my company and Dominique, the

independent contractor, would be destroyed, not by market forces but by arbitrary regulations imposed by an overly broad, highly subjective bureaucratic rule.

The proposed rule would force Dominique to give up her dreams of being her own boss, following her own path, building something unique and doing what she feels is in her family’s best interest. Although she is willing to take the economic risk involved in building her business, she is denied the opportunity to comply with the government’s subjective rules.

The bottom line is that the proposed USDOL rule is bad for small businesses and will seriously hurt our country’s entrepreneurial spirit. Please help us end this rule by submitting a public comment to the USDOL by November 28th by visiting sbam.org. Before it harms Michigan’s small businesses, the proposed rule should be rejected without exception.

— David Rhoa is a serial entrepreneur who owns and operates several companies. David is a small business advocate who has written and spoken on both the state and federal levels on small business tax policy and small business labor policy.

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