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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations individual who noted that point made about less litigation is a valid one, but countered that the cost-savings pointed out seem to fall only on the side of the business/employer.

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1. Increased Clarity This final rule is expected to increase clarity concerning whether a worker is classified as an employee or as an independent contractor under the FLSA.
This would reduce the burden faced by employers, potential employers, and workers in understanding the distinction and how the working relationship should be classified. It is unclear exactly how much time would be saved, but the Department provides some quantitative estimates to provide a sense of the magnitude.
The importance of increased clarity is noted by a study coauthored and cited by the Society for Human Resource Management SHRM that found human resources professionals largest challenge concerning external workers that they would like to see resolved is the legal ambiguity regarding the use and management of external workers.200
Commenters from the business community agreed with the Department that the rule would improve legal clarity. See, e.g., U.S. Chamber of Commerce; CWI; WPI; ATA; NRF;
National Restaurant Association. Groups that represent freelancers and individual freelancers who commented also believe this rule would improve legal clarity. See, e.g., CPIE; Fight for Freelancers. However, several commenters dispute the Departments claim that the rule will increase clarity, with some focusing on specific industries. The TRLA stated that the proposed rule unnecessarily muddies the waters with respect to the farm labor market because they believe it contradicts Federal courts interpretation of a Federal statute. The State AGs also stated this rule will create confusion because many jurisdictions have applied the economic reality test to distinguish between employees and independent contractors for decades.201
The Department expects this rule to produce beneficial cost savings by 200 SHRM and SAP SuccessFactors. Want Your Business to Thrive? Cultivate Your External Talent 2019, https www.shrm.org/hr-today/trends-andforecasting/research-and-surveys/pages/externalworkers.aspx.
201 While state-imposed requirements may influence the use of flexibilities provided by this rule, and could impact the number of entities and workers affected, the Department does not possess the requisite data to estimate the number of states that would implement measures or the magnitude of their impact on the universe of independent contractors considered in this analysis.

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clarifying the classification process. To quantify this benefit, the following variables need to be defined and estimated: 1 The number of new employer-worker relationships being assessed to determine the appropriate classification; 2 the amount of time saved per assessment; and 3 an average wage rate for the time spent. The Department estimates this will result in a $447.2 million in savings annually.
The Department began with its estimate of the number of current independent contractors as the basis for estimating the number of new relationships. As discussed in section VIC, according to the CWS, there are 10.6 million workers who are independent contractors on their primary job. Adjusting this figure to account for independent contractors on their secondary job results in 18.9
million independent contractors.
According to Lim et al. 2019, in 2016
the average number of 1099MISC forms issued per independent contractor was 1.43. Therefore, the Department assumes the average independent contractor has 1.43 jobs per year.202
This number does not account for the workers who do not file taxes, a recognized limitation in the cited study.
Because it is unclear whether those who do not file taxes would have a higher or lower number of jobs per year, the Department does not believe that this limitation biases the estimate in either direction. Multiplying these two numbers results in an estimated 27.0
million new independent contractor relationships each year.203
The independent contracting sector is characterized by churn. In their annual State of Independence in America 2019
report, MBO Partners, a leading American staffing firm, finds that 47.8
percent of U.S. adults reported working as an independent contractor at some point in their career; they estimate that figure will reach 53 percent in the next five years.204 This fits with the range of estimates for the size of the independent contractor universe presented in section VIC. Thus, it is assumed that over the ten-year time horizon of this analysis, millions of Americans will choose independent contractor work either for 202 Lim
et al., supra note 75, at 61.
Department did not incorporate estimates of potential growth in independent contracting due to uncertainty. For example, the trend in independent contracting varies significantly based on the source. Additionally, the impact of this rule on the prevalence of independent contracting is uncertain. Lastly, state laws, such as those in California discussed below, may have significant impacts on the prevalence of independent contracting, which would make historical growth rates potentially inappropriate.
204 MBO Partners 2019, supra note 131.
203 The
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the first time or return to it. This churn is not explicitly estimated for use in this analysis, but it provides a qualitative rationale for not attempting to taper the expected size of the independent contractor universe over time.
A subset of new independent contractor relationships may have time savings associated with the final rule.
Such a reduction is difficult to quantify because it is unclear how many establishments and independent contractors will realize benefits of increased clarity. It is also possible that the increased clarity of the classification process will lead to compound effects that generate far greater benefits over time. Nonetheless, because it is possible that only a subset of contracts would receive the cost savings associated with increased clarity, the Department has reduced the number of contracts in the estimate by 25 percent. This results in 20.2 million contracts with cost savings to both the employer and the independent contractor.205
In her comment, Representative Pramila Jayapal questioned the breadth of the time savings benefit. She claimed that the only beneficiaries of this rulemaking would be large, repeat players that frequently misclassify workers. It is unclear what data Representative Jayapal relied on to come to this conclusion. Furthermore, Representative Jayapal largely ignores the millions of properly classified independent contractors that will benefit from added regulatory clarity.
The Department disagrees that the cost savings benefits will be limited to large, repeat players. Other comments concur with the Departments view, supported by data-backed arguments that the expect the rule to enable access to flexible work for caregivers responding to the pandemic, enable workers to readily supplement their income, and unlock the potential of the growing tech sector. Farren and Mitchell, of the Mercatus Center, assert that the rule, builds on existing precedent and serves largely as a synthesis and clarification of previous economic reality tests, rather than implementing any sort of radical change, adding that independent contractors will likely develop more productive economic relationships.
Per each new contract with time savings, the Department has assumed that employers would save 20 minutes of time and independent contractors 205 18.9 million independent contractors 1.43
contracts per year 10.25 possible reduction in clarity benefits = 20.2 million.

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