DOL’s Final Rule on Worker Classification To Increase Legal Woes, Administrative Burdens for Nursing Homes

Many skilled nursing operators will need to reclassify their existing relationships with independent contractors and rethink future ones in the wake of a final rule issued by the Department of Labor (DOL) on Tuesday.

The DOL’s new rule revises guidance on how to determine who is an employee and who is an independent contractor under the Fair Labor Standards Act (FLSA). The DOL’s move is motivated by extending worker protections – a misclassification of employees may deny workers minimum wage, overtime pay and other benefits. But the change is likely to increase legal cases and add administrative burdens for nursing homes, experts said.

Nursing home leaders believe the final rule will definitely have a material impact on both independent contractors and agency staffing. Many workers may need to be re-classified, according to Steve LaForte, chief legal officer and EVP of Corporate Affairs at Idaho-based Cascadia Healthcare.

“Unfortunately it is one more administrative headache that likely won’t do anything to improve quality of care but will invoke considerable time and money on compliance,” LaForte told Skilled Nursing News.

The DOL’s latest guidance effectively reverts back to the historical norm when it comes to classifying workers, Ted Jeanloz, CEO of staffing agency connectRN, told SNN. ConnectRN deals solely with W2 workers.

“I think it is a big deal for the SNF space. It’s an opportunity for everybody to reevaluate their compliance procedures,” said Jeanloz. “Operators need to be really diligent about their compliance with federal wage and hour law.”

Jeanloz believes the space will see enforcement of this new rule with a “pretty steady drumbeat of (legal) cases.”

Litigation pitfalls connected to 1099 workers, or independent contractors, started to pop up in the last year or so.

Other independent professional marketplaces like ShiftKey – which connects independent contractors with unfilled and/or available shifts – anticipate the rule to be challenged by various stakeholders.

“The recent release of the DOL independent contractor rule does not change ShiftKey’s ongoing operations. This rule has been strongly debated for years and was not a surprise to anyone in the industry,” Regan Parker, chief legal and public affairs officer for ShiftKey, said in a statement. “There is a long road ahead for this rule as it gets challenged by multiple stakeholder voices, including various legal entities, governing bodies and the business community.”

Operators should be using the latest factors to reevaluate the classification of workers across their entire portfolio, Jeanloz said. There are still viable independent contractor paths in the skilled nursing space, he said, pointing to respiratory therapists who come in and out on an ad hoc basis.

“A lot of operators, I think, are just getting it wrong. The hard part is, I wouldn’t put them at fault for it. I think that the market was a little ambiguous on this,” said Jeanloz. “Now’s the time to come back and think about working with classification and make sure you’re getting it right.”

More stringent criteria

The rule, due to take effect on March 11, restores a multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or independent contractor. Six factors delve into a worker’s relationship with an employer, including any opportunity for profit or loss a worker might have.

The other five factors consider the financial stake and nature of any resources a worker has invested in the work; the degree of permanence of the work relationship; the degree of control an employer has over the person’s work; whether the work the person does is essential to the employer’s business; and consideration of the worker’s skill and initiative.

The rule also rescinds independent contractor status under the FLSA’s 2021 IC Rule published on Jan. 7, 2021. The Trump era legislation dropped the multifactor assessment down to just two factors, Jeanloz said – with investments made by the worker and economic incentive still considered.

“An Uber driver who made the investment in their car, which is a significant part of the service, that’s like running a business, that is a small business that that person is running,” said Jeanloz. “You transition that to a nurse or to a CNA, they didn’t really make an investment. The Department of Labor is clear that paying for your education or certification doesn’t count as an investment in your business.”

The DOL says this change was made in an effort to be more consistent with the FLSA, “as interpreted by long standing judicial precedent.”

“ShiftKey affords an already exhausted industry of healthcare professionals with the flexibility to work on their own terms – providing access to a critical relief valve of nurses who want or need to work independently,” said Parker. “It is not our belief that the rule seeks to further cripple our nation’s healthcare system by incorrectly targeting independent healthcare providers who are working by choice or personal necessity as workforce entrepreneurs.”

Reducing misclassification

The rule will reduce misclassification risks while providing a consistent approach when a business needs to engage with individuals in business for themselves, the DOL said.

“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” Acting Secretary of Labor Julie Su said in a statement. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”

Within the SNF world, easy classification as 1099 workers exerts wage pressures on the industry. Temporary staffing platform companies such as Gale Healthcare Solutions that hire nursing staff as W2 employees said that they lose talent to companies utilizing the 1099 model, according to DOL’s report.

“1099 agencies promote wages that appear higher because they do not provide traditional protections of employment or account for withholding taxes and additional expenses required by the W-2 model,” the company said in a statement.

Gale and connectRN, along with other W2 staffing companies IntelyCare and ShiftMed in August urged the DOL to ensure all temporary staff in the space be classified as employees rather than independent contractors for the reasons listed above.

In the same month, Congress introduced the Protecting the Right to Organize Act (PRO Act) making it harder to classify workers as independent contractors – the legislation passed the House in March 2021 but has stalled in the Senate.

While the financial impact on nursing homes workers wasn’t included in DOL’s report on the final rule, an estimated 20% of construction workers who should be treated as employees – but are not – lose close to $1 billion in wages annually, according to The Signatory Wall and Ceiling Contractors Alliance (SWACCA). Misclassification often undercuts employers that comply with the law and causes a “race to the bottom” in labor standards, stakeholder commenters told DOL.

The DOL Wage and Hour Division considered feedback provided by stakeholders at forums in the summer of 2022 and during a comment period after the proposal’s announcement in October 2022, the agency said.