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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations
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commenter explained that being an independent worker allows for me to do what I can as a single mother, have flexibility. Another stated that freelancing has afforded me independence and flexibility and the opportunity to be a productive member of society, and do my best work. As a final illustrative example, another commenter asserted that the primary value for myself as an independent contractor for my services is the freedom to negotiate, to choose, and the freedom to limit what services I provide, the days, and hours of work, and the price of my labor, unencumbered by the less flexible but more secure employer employee relationship. Although some workers in positions converted from employees to independent contractor relationships may receive fewer benefits traditionally associated with classification as employees, the Department believes that this would likely be infrequent and their net effect would not necessarily be negative.170
Moreover, the Department believes any negative effects would be outweighed by the significant value the rule delivers to other workers and businesses by clarifying, simplifying, and reducing transaction costs around independent contractor arrangements.
No commenter provided evidence or specific cases in which individuals or types of workers would, as a result of this rule, be converted from employees to independent contractors. Because the rule does not change the classification of any employee, any jobs converted without meaningful change would have had to already have satisfied the requirements of bona fide independent contracting arrangements under this rule, with the only change likely being a lower assessed litigation risk for certain businesses. While the number of workers for whom reclassification occurs without bringing them meaningful benefits may not be zero, the Department believes such cases will be rare exceptions. Even if the classification of a worker were to change, the business could face market forces that would likely hold overall compensation steady. Furthermore, businesses would need to take caution that any new contract relationship would neither damage worker relations 170 As explained in more detailed above, this is because most workers can be converted from employee into independent contractor classification only if they are provided with greater control over their work and opportunity for profit or loss based on their initiative or investment. Such flexibility and entrepreneurial opportunities may be more valuable to such workers than potential reduction in benefits associated with classification as employees.

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nor its underlying business model, both of which would likely negatively impact productivity.
In summary, the most common categories of job conversionse.g., new positionsare likely to positively impact workers. And the category of job conversions that is likely to produce negative impactsi.e., reclassification of workers without changes to the job is most likely the rarest. For these reasons, the Department believes benefits to workers from job conversions will, on balance, exceed costs.
E. Costs The Department considered several costs in evaluating the rule. The Department quantified regulatory familiarization costs and estimated that they will total $370.9 million in Year 1.
Other potential costs, including those raised by commentators, were not quantified, for reasons explained in the sections that follow.
1. Regulatory Familiarization Costs Regulatory familiarization costs represent direct costs to businesses and current independent contractors associated with reviewing the new regulation. To estimate the total regulatory familiarization costs, the Department used 1 the number of establishments, government entities, and current independent contractors; 2
the wage rates for the employees and for the independent contractors reviewing the rule; and 3 the number of hours that it estimates employers and independent contractors will spend reviewing the rule. This section presents the calculation for establishments first and then the calculation for independent contractors.
For a rule like this one, it is not clear whether regulatory familiarization costs are a function of the number of establishments or the number of firms.171 Presumably, the headquarters of a firm will conduct the regulatory review for businesses with multiple locations, and also may require some locations to familiarize themselves with the regulation at the establishment level.
Other firms may either review the rule to consolidate key takeaways for their affiliates or they may rely entirely on 171 An
establishment is commonly understood as a single economic unit, such as a farm, a mine, a factory, or a store, that produces goods or services.
Establishments are typically at one physical location and engaged in one, or predominantly one, type of economic activity for which a single industrial classification may be applied. An establishment contrasts with a firm, or a company, which is a business and may consist of one or more establishments. See BLS, Quarterly Census of Employment and Wages: Concepts, https
www.bls.gov/opub/hom/cew/concepts.htm.

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outside experts to evaluate the rule and relay the relevant information to their organization e.g., a chamber of commerce. The Department used the number of establishments to estimate the fundamental pool of regulated entitieswhich is larger than the number of firms. This assumes that regulatory familiarization occurs at both the headquarters and establishment levels.
There may be differences in familiarization cost by the size of establishments; however, the analysis does not compute different costs for establishments of different sizes.
Furthermore, the analysis does not revise down for states where the laws may more stringently limit who qualifies as an independent contractor such as California and thus the new rule will have little to no effect on classifications. To estimate the number of establishments incurring regulatory familiarization costs, the Department began by using the Statistics of U.S.
Businesses SUSB to define the total pool of establishments in the United States.172 In 2017, the most recent year available, there were 7.86 million establishments. These data were supplemented with the 2017 Census of Government that reports 90,075 local government entities, and 51 state and Federal government entities.173 The total number of establishments and governments in the universe used for this analysis is 7,950,800.
The applicable universe used by the Department for assessing familiarization costs of this final rule is all establishments that engage independent contractors, which is a subset of the universe of all establishments. In its analyses, the Department estimates the impact of regulatory familiarization based upon assessment of the regulated universe. In several recent rulemakings, the Department estimated that the regulated universe comprised all establishments because the rules were broadly applicable to every employer.174
For those rules, the Department estimated familiarization costs by assuming each establishment would review each rule. Because this final rule affects only some establishments, i.e., 172 U.S. Census Bureau, 2017 SUSB Annual Data Tables by Establishment Industry. https
www.census.gov/data/tables/2017/econ/susb/2017susb-annual.html.
173 U.S. Census Bureau, 2017 Census of Governments. https www.census.gov/data/tables/
2017/econ/gus/2017-governments.html.
174 These include Joint Employer Status under the Fair Labor Standards Act; Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees; and Regular Rate Under the Fair Labor Standards Act.

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