Here is another post in our ongoing series on the news, lawsuits and updates around 1099 staffing in healthcare. Please check back with us to see the latest as we follow the stories and bring the latest to you.
What’s old is new again. The Department of Labor (DOL) recently released a rule change that makes it harder for temporary workers, including those in healthcare, to be classified as independent contractors. Under the new rule, many of these workers could be deemed employees of the facilities where they work, with rights to benefits and other federal labor law protections.
The new DOL worker classification rule — really a return to a six-factor test used before 2021 — raises the risk that certain staffing agencies and healthcare facilities could face increased worker complaints, government audits, lawsuits, and misclassification penalties related to their use of independent contractors for temporary staffing support. But what exactly does this mean and why does it matter for your facility?
What’s in a Definition?
Let’s back up for a second. What’s the difference between an independent contractor and an employee? Independent contractors are workers who are considered independent businesses, meaning they aren’t subject to the same oversight, protections, or benefits as regular employees.
The DOL traditionally used a six-factor test to determine whether a worker is classified as an independent (“1099”) contractor or a regular (“W2”) employee. However, in 2021, it enacted a rule that focused primarily on two factors which made it somewhat easier for businesses to classify these workers as 1099 contractors.
Before we dive into the details, remember that the new DOL worker classification rule change involves just this one federal agency. States, including their labor departments and courts, can apply their own, often stricter tests to determine employee misclassification for state law purposes.
Recent trends at the federal level, and even in different states, have led to greater scrutiny of facilities that use 1099 nursing professionals. This has resulted in increased protections for many of these workers and increased legal risks for facilities that hire them.
400 Pages on Six Factors
It’s easy to understand why people are often frustrated by government regulators. After all, who else needs 400 pages to explain a six-factor test that has been in use for decades?
That aside, the new (old) rule implements a DOL independent contractor test that determines a worker’s classification by weighing each of the following six factors:
1. Opportunity for Profit or Loss
This factor addresses a worker’s capacity to effectively discuss and determine the value of their services or products, as well as their autonomy in advertising. These elements are usually indicators of a separate business entity, not an employee.
With this factor, facilities evaluating their staffing workforce should ask whether the 1099 nursing professionals they hire appear to be more like separate business entities or in-house employees. In most cases, the latter is true, making it harder to establish independent contractor status.
2. Investments by the Worker and the Employer
The expenses associated with the job matter, too. For example, if the worker has control over their own tools and equipment, this factor would weigh more toward an independent contractor classification.
Facilities applying this factor should ask how realistic it would be for 1099 nursing professionals in their facility to use their own personal medical equipment on the job, which would also weigh against independent contractor classification.
3. Degree of Permanence of the Work Relationship
A working engagement without a set end date or which is exclusive of work for other employers leans more toward an employee classification. However, under the current DOL independent contractor test, the lack of permanence doesn’t automatically indicate an independent contractor classification. If it’s due to the nature of the business or industry instead of a worker’s “own independent business initiative,” then this factor could still support an employee classification.
As facilities apply this factor, it’s important to ask whether the infrequency of any temporary staff work is due to the nature of their industry or to the individual workers.
4. Nature and Degree of Control
This factor considers how closely the employer supervises the worker, how they schedule their shifts, and whether they restrict the worker from working for other employers. The more control a hiring party has over these aspects of the workplace, the more likely that a worker would be classified as an employee.
For healthcare facilities hiring 1099 nursing professionals, this factor will almost always weigh toward an employee classification. By virtue of their licensing alone, these nursing professionals will require training and supervision during their clinical work, not to mention the policies and procedures they may be required to follow in a particular facility.
5. Whether the Work Performed is an Integral Part of the Employer’s Business
What could be more integral to healthcare than the providers delivering the care? For this part of the DOL worker classification rule, facilities should ask themselves if they would be able to function without the services provided by their nursing staff. If not, then any 1099 nursing professionals they hire would likely be considered integral to their business, making it even harder to retain their classification as independent contractors.
6. Skill and Initiative
This factor evaluates whether a job demands specific expertise and whether that expertise allows the worker to demonstrate business-minded initiative. If so, this would weigh toward independent contractor classification.
Facilities that utilize 1099 staffing would likely be able to establish that their temporary nursing professionals have specialized skills, but the question is whether such skills are used in connection with their own business-like initiative or the initiatives of the facility while they’re working. More often than not. More often than not, a 1099 nursing professional would be utilizing their specialized skills in support of facility initiatives, not their own, again weighing against an independent contractor classification.
The prior 2021 rule gave greater weight to factors one and four above, allowing businesses to establish independent contractor classification on just two core factors, instead of all six. However, under the new DOL worker classification rule, no single factor is determinative. This means that facilities utilizing independent contractors in their workforce must prove that status in light of all six factors.
Implications for Healthcare Facilities
The updated DOL independent contractor test adds more legal hurdles for facilities to clear in order to establish independent contractor status for temporary healthcare workers. As state independent contractor tests add an additional layer of scrutiny for facilities, avoiding liability for employee misclassification has become even more of a compliance challenge.
Given all of this, is there a way for facilities to fill shifts during a nursing shortage without increasing the risk of employee misclassification? Thankfully, yes. By working with staffing partners that hire their nursing professionals as W2 employees, you can get the benefits of flexible staffing and a workforce that already has a designated employer responsible for complying with the Department of Labor independent contractor rule and other legal requirements.
What Will the New DOL Worker Classification Rule Mean for You?
As facilities strive to ensure workforce compliance with stricter independent contractor rules, having a W2 staffing partner can prove invaluable. See how you can minimize the risk of workforce audits or misclassification penalties by staffing your nursing shifts with trained and supervised W2 professionals today.
Legal Disclaimer: This article contains general legal information, but it is not intended to constitute professional legal advice for any particular situation and should not be relied on as professional legal advice. Any references to the law may not be current as laws regularly change through updates in legislation, regulation, and case law at the federal and state level. Nothing in this article should be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed to practice in your jurisdiction.