Earlier this year, we notified you that the US Department of Labor (“DOL”) had published a final rule simplifying the standards relating to the classification of workers as employees or independent contractors for purposes of the Fair Labor Standards Act (FLSA).
The DOL has now said that those standards were “in tension with the language and purpose of” the FLSA.
Although the DOL indicated that it has no immediate plans to issue a new rule, President Biden has previously stated that he favors the “ABC” test, which assumes a worker is an employee unless the employer shows that the worker is free from the employer’s control and direction, the work is outside the usual course of the employer’s business, and the worker is customarily engaged in an independently established trade, occupation, profession or business.
This rule’s withdrawal affects only worker classification issues under the FLSA, that is, the federal wage and hour laws. Tests used under state laws, by the IRS, or by other agencies are not affected.
Businesses often prefer to characterize their workers as independent contractors rather than as employees, since independent contractors are responsible for their own taxes, including FICA, and are not subject to many of the laws protecting employees, such as wage and hour laws.
If, however, you treat someone as an independent contractor and that person is recharacterized as an employee by a government agency, significant penalties may be imposed.
Further, those who believe they have been misclassified as independent contractors are increasingly filing lawsuits against their employers.
Several factors are considered when determining whether a worker is an employee or an independent contractor. These factors vary from state to state and may also differ depending on the law involved, that is, the purpose for which the worker is characterized, e.g., for purposes of tax or workers compensation.
Generally speaking, if a person is under the direction and control of the employer, it is more likely that the person will be characterized as an employee. If a person performs the task for one employer rather than for many, this also strengthens the employment characterization.
On the other hand, if the individual performs similar tasks for several different employers and functions independently, it is more probable that the individual will be characterized as an independent contractor.
When the employer provides the tools, equipment and a place to work, it is more likely that the person performing the task will be characterized as an employee, but if the individual provides his or her own tools, equipment and supplies, the argument that the worker is an independent contractor is reinforced.
Whether the person has his or her own business license, as well as other relevant factors, may also be considered when determining a worker’s status.
To strengthen the argument that a worker is independent, you should have a written contract requiring the worker to furnish all tools, materials and equipment necessary to perform the work, to obtain all necessary business registrations, permits and licenses and to be responsible for hiring, paying, supervising and firing any employees working for that person, though statements in the contract are by no means decisive.
When assigning the work, you should be sure to allow the worker as much flexibility as possible with respect to how the work will be done; that is, your company’s main concern should be the finished product.
Whether you are an employee, an independent contractor, or an employer, please feel free to contact us if you have any questions about worker classification or any other employment-law issues.
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For more information about employment law, see Employment Law (in Plain English)®, co-authored by members of this law firm. The book is available through Skyhorse Publishing, Amazon, Barnes & Noble, Powell’s Books, and Bookshop (an online bookstore that allows you to support your favorite independently owned bookstore).
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