Friday, July 17, 2015

Don't Step On It

"Whoa! Did someone step on a duck?"
The unavoidable and necessary bane of employers is employees.

Employees simply cost more than contractors.

Laws and regulations mandate insurance requirements, overtime pay, working hours, discrimination boundaries, rights and liabilities - each of these adds up to challenge the profit goal of the business.

So business tries to classify as much labor as possible as something other than an employee.

This has been an issue since the employer-employee relationship was created. Recent examples include actions against FedEx, Uber, and other large companies where controlling compensation outflow is a significant part of satisfying Wall Street's desire for short term earnings.

Small businesses too are highly sensitive to the dent of labor on profits, which is why industries that have more cash flowing through them tend to have more "independent contractors", such as construction or restaurants.

Earlier this week the U.S. Department of Labor this week put employers on alert with a memorandum stating the Fair Labor Standard Act's standard for determining employee versus contractor status means that most workers are, in fact, employees subject to all of the withholding, tax, and other labor standards applicable in law.

While we in workers' compensation look to employer control or employer benefit in determining the relationship, the DoL says it's economic dependence.

"If the worker is in business for him or herself (i.e., economically independent from the employer), then the worker is an independent contractor," Wage and Hour Division Administrator David Weil opined in the 15 page memo, but "(i)f the worker is economically dependent on the employer, then the worker is an employee."

Other factors employers must also consider include:
  • Whether a worker is in business for himself and whether there is a possibility for loss.
  • How the worker's investment compares to the employer's investment. Weil said independent contractors should make some investment and undertake at least some risk.
  • Whether the work performed requires some special skills and whether those skills are "akin" to those of other independent contractors.
  • Whether the relationship with the employer is permanent or indefinite. Weil said a worker's lack of a permanent and indefinite relationship should also be evaluated to consider whether the contractor's status derives from his own business initiative.
  • The degree and nature of the control an employer exerts over a worker. He said an employer's lack of control is "particularly telling" if the contractors work from home or offsite.
Honestly, nothing in the DoL memo changes anything. The delineation between contractor and employee includes that gray area because some relationships migrate.

The memo may signal, though, that the federal government is getting more serious about enforcement of labor laws and rules.

And one thing worse than categorizing an employee as a contractor is getting caught doing it.

If it looks like a duck, don't step on it ... "quack."

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