Final Independent Contractor Rule: Implications for Health Care

This morning, the Department of Labor issued a final rule interpreting who is and who is not, an independent contractor v. an employee. Contract work in health care has boomed since the pandemic, though even pre-pandemic, the use of contractors (physicians, nurses, therapists, etc.) was on the increase. The final rule is available here: 2024-00067

The new rule makes it harder for companies to classify workers as independent contractors. The rule changes how the Department of Labor (DOL) determines if/when a worker is an employee or an independent contractor under the Fair Labor Standards Act. Contractors in business for themselves don’t qualify for the same minimum wage or overtime pay protections provided to employees.

The rule is controversial in so much that it applies a much wider, specific standard to worker classification (employee v. contractor).  The prior Trump administration test relied on how much control workers have over their job duties and their opportunities for profit or loss in determining whether they were contractors or employees.  This methodology, considered more flexible for companies, is replaced by a new series of tests; a multi-factor approach.

  1. The degree to which the employer controls how the work is done.
  2. The worker’s opportunity for profit or loss.
  3. The amount of skill and initiative required for the work.
  4. The degree of permanence of the working relationship.
  5. The worker’s investment in equipment or materials required for the task.
  6. The extent to which the service rendered is an integral part of the employer’s business.

Per DOL administrator, Jessica Looman, “N0 factor or set of factors has a predetermined weight, and a totality of the circumstances of the working relationship must be considered. The six factors are not exhaustive, nor are any of them more important than any others.” She indicates that the DOL will provide more guidance to assist employers with implementation.

For health care, the implications of classification, contractor v. employee, can be rather complicated, and if wrong, expensive via penalties.  Health care providers often rely on contract staff for one reason or another.  Locum Tenens for physician coverage is common, especially in rural settings.  Temporary or interim administration and management is also fairly common, particularly in senior living and post-acute care.  And, for all providers today, attaining staff (nursing) via staffing agency is a very common, often weekly, occurrence.

For example, platform-based staffing companies for nursing staff utilize two models.  One, the staff supplied are W-2 workers of the agency.  No potential problems here with the new rule.

Two, the staff are 1099 workers, using the agency to achieve placement options and shift opportunities.  Here. the possible conflicts arise.  The possible misinterpretation or misapplication of one of the six factors (above), is likely (control over work, skill and initiative required, etc.). For nurses, temporary staff do not exercise significant control over their duties when they work per diem shifts. They do not determine when they will arrive or leave, the shift responsibilities they will have, or what procedures (facility set) they will use. However, just like a healthcare provider’s permanent employees, clinicians are offered set hours, work under management supervision, and follow standard procedures. Complicated.

For physicians and administrative Locum Tenens, the relationship appears a bit more clear, due to the professional nature of the job and the control the individual has over how the work is done, and the independent judgment required.  Only broad control exists on the part of the employer when it comes to work performance (location, general times, etc.). 

Providers that misclassify workers as contractors can face enforcement actions. The financial and legal risks do not end there. Misclassifying workers can result in unpaid payroll taxes, workers’ compensation liability, and malpractice claims.

In one example cited in a McKnight’s article from February 2023, a “Philadelphia-based healthcare staffing company paid $9.3 million in back wages and liquidated damages to their staff after it was discovered they misclassified employees as independent contractors and failed to provide required overtime pay. The potential to be regarded as a “joint employer” puts healthcare providers served by 1099 companies at their own legal and financial risk”.

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