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Federal Register / Vol. 86, No. 86 / Thursday, May 6, 2021 / Rules and Regulations
D. Transfers The Department believes that it is important to provide a qualitative discussion of the transfers that would have occurred under the Independent Contractor Rule. In the economic analysis originally accompanying the Rule, the Department assumed that the Rule would lead to an increase in the number of independent contractor arrangements, and acknowledged that some of this increase could be due to businesses reclassifying employees as independent contractors.199 As discussed in the Rule and again below, an increase in independent contracting could have resulted in transfers associated with employer-provided fringe benefits, tax liabilities, and minimum wage and overtime pay.200 By withdrawing the Rule, these transfers from employees and, in some cases, from state or local governments and the recipients of government-operated unemployment insurance of workers compensation programs to employers are avoided.

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1. Employer Provided Fringe Benefits The reclassification of employees as independent contractors, or the use of independent contracting relationships as opposed to employment, decreases access to employer-provided fringe benefits such as health care or retirement benefits. According to the BLS Current Population Survey CPS
Contingent Worker Supplement CWS, 75.4 percent of independent contractors have health insurance, compared to 84
percent of employees.201 This gap between independent contractors and employees is also true for low-income workers. Using CWS data, the Department compared health insurance rates for workers earning less than $15
per hour and found that 71.0 percent of independent contractors have health insurance compared with 78.5 percent of employees. Lastly, the Department considered whether this gap could be larger for traditionally underserved groups or minorities. Considering the subsets of independent contractors who are female, Hispanic, or Black, only the Hispanic independent contractors have a statistically significant difference in the percentage of workers with health insurance estimated to be about 18
percentage points lower.202
199 See
86 FR 122527.
86 FR 121618, 122324.
201 Bureau of Labor Statistics, Contingent and Alternative Employment ArrangementsMay 2017, USDL180942 June 7, 2018, https
www.bls.gov/news.release/pdf/conemp.pdf.
202 To measure if the difference between these proportions is statistically significant, the Department used the replicate weights for the CWS.
200 See
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Additionally, a major source of retirement savings is employersponsored retirement accounts.
According to the CWS, 55.5 percent of employees have a retirement account with their current employer; in addition, the BLS Employer Costs for Employee Compensation ECEC found that employers pay 5.3 percent of employees total compensation in retirement benefits on average $1.96/
$37.03. If a worker is reclassified from employee to independent contractor status, that worker would likely no longer receive employer-provided retirement benefits.
2. Tax Liabilities As self-employed workers, independent contractors are legally obligated to pay both the employee and employer shares of the Federal Insurance Contributions Act FICA
taxes. Thus, as discussed in the Rule, if workers classifications change from employees to independent contractors, there may be a transfer in federal tax liabilities from employers to workers.203
Although the Rule only addressed whether a worker is an employee or an independent contractor under the FLSA, the Department assumes in this analysis that employers are likely to keep the status of most workers the same across all benefits and requirements, including for tax purposes.204 These payroll taxes include the 6.2 percent employer component of the Social Security tax and the 1.45 percent employer component of the Medicare tax.205 In sum, independent contractors are legally responsible for an additional 7.65 percent of their earnings in FICA
taxes less the applicable tax deduction for this additional payment. Some or all of this increased tax liability may ultimately be paid for by a business if it increases pay to compensate independent contractors for this tax At a 0.05 significance level, the proportion of Hispanic independent contractors with any health insurance is lower than the proportion for all independent contractors.
203 See 86 FR 1218.
204 Courts have noted that the FLSA has the broadest conception of employment under federal law. See, e.g., Darden, 503 U.S. at 326. To the extent that businesses making employment status determinations base their decisions on the most demanding federal standard, a rulemaking addressing the standard for determining whether a worker is an FLSA employee or an independent contractor may affect the businesses classification decisions for purposes of benefits and legal requirements under other federal laws.
205 Internal Revenue Service, Publication 15, Circular E, Employers Tax Guide Dec. 23, 2019, https www.irs.gov/pub/irs-pdf/p15.pdf. The social security tax has a wage base limit of $137,700 in 2020. An additional Medicare Tax of 0.9 percent applies to wages paid in excess of $200,000 in a calendar year for individual filers.

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liability, and changes in compensation are discussed separately below. Changes in benefits, tax liability, and earnings must be considered in tandem to identify how the standard of living may change.
In addition to affecting tax liabilities for workers, some commenters claimed that the Rule would have an impact on state tax revenue and budgets. SWACCA
noted that taxpayer costs would have increased following the Rule. They state that an increase in independent contractor arrangements leads to reduced tax revenues and increased costs to Federal, State, and local governments for programs like unemployment insurance and workers compensation. A comment from the State Officials also claimed that reclassification following the Independent Contractor Rule would disrupt States efforts to administer their unemployment insurance programs, especially at a time when they have been processing record numbers of unemployment claims.
Because independent contractors do not receive benefits like health insurance, workers compensation, and retirement plans from an employer, the State Officials suggested that a rule that increases the prevalence of independent contracting could shift this burden to State and Federal governments.
3. FLSA Protections When workers are classified as independent contractors, the minimum wage, overtime pay, and other requirements of the FLSA no longer apply. The 2017 CWS data indicate that independent contractors are more likely than employees to report earning less than the FLSA minimum wage of $7.25
per hour 8 percent for self-employed independent contractors, 5 percent for other independent contractors, and 2
percent for employees.206 Research on drivers who are classified as independent contractors and work for online transportation companies in California and New York also finds that many drivers receive significantly less than the applicable state minimum wages.207 Commenters asserted that 206 In their comment, CWI noted that the CWS
data that was cited by the Department does not include this data. These calculations cannot be found in the tables published by BLS, but are from the Departments own calculations of the CWS
microdata.
207 M. Reich, Pay, Passengers and Profits: Effects of Employee Status for California TNC Drivers.
University of California, Berkeley October 5, 2020, https irle.berkeley.edu/files/2020/10/PayPassengers-and-Profits.pdf; L. Moe, et al. The Magnitude of Low-Paid Gig and Independent Contract Work in New York State, The New School Center for New York City Affairs February
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