The announcement of a new final rule addressing when employees can legally be categorized as unbiased contractors emphasizes the U.S. Division of Labor’s (DOL) intent to carry readability to the difficulty, however with a change in administration close to, the query should still be up within the air.
The ultimate rule, introduced January 6, is slated to take impact on March 8. The brand new rule doesn’t make main adjustments to the present customary for figuring out when employees might be categorized as unbiased contractors as a substitute of workers, however it’s seen as making it simpler to justify classifying employees as unbiased contractors. The usage of unbiased contractors might be engaging since companies don’t pay employment taxes on contractors or present them with advantages.
The brand new rule’s two “core elements” look at the character and diploma of the employee’s management over the work and the employee’s alternative for revenue or loss. The extra management employees have, the extra possible they’re to be legally categorized as contractors.
The rule additionally contains three different elements: the quantity of talent required for the work, the diploma of permanence of the working relationship between the employee and the potential employer, and whether or not the work is a part of an built-in unit of manufacturing.
Dangers of Contractor Classification
Jodi R. Bohr, an lawyer with Tiffany & Bosco, P.A. in Phoenix, Arizona, says the brand new rule “solely barely” restates the elements at present outlined within the DOL’s Fact Sheet 13, Employment Relationship Under the Fair Labor Standards Act (FLSA).
“The revised elements haven’t been adopted by the courts, and they aren’t meant to vary the financial realities check at present used,” Bohr says. “As an alternative, the elements are supposed to present extra readability to employers and emphasize sure elements inside the check.”
Regardless that the rule appears to look favorably on an unbiased contractor classification, Bohr says employers searching for to make use of contractors ought to achieve this fastidiously.
“With the change to the Biden administration, the DOL’s interpretation shall be strictly construed in favor of a classification of worker as a substitute of unbiased contractor,” Bohr says, including that corporations ought to ask themselves this query: “Is that this particular person correctly categorized below the present elements?” If the reply is not any, a correction must be made swiftly, and the corporate ought to work with counsel to find out potential legal responsibility for the earlier improper classification.
In her expertise defending purchasers below DOL scrutiny over the past yr, Bohr says “DOL investigators have talked about that the end result would possible have been extra extreme below the Biden administration and to maintain an eye fixed out for extra of those investigations in 2021.”
Bohr says she has just lately seen the DOL “come down arduous on employers who it felt improperly categorized workers as unbiased contractors.” In a January 2021 article for Arizona Employment Legislation Letter, she famous “contradictory actions” popping out of the DOL.
Within the DOL’s efforts to research wage and hour practices, Bohr’s article says the company appeared to give attention to corporations utilizing unbiased contractors as a part of their workforce, “all of the whereas seemingly revising laws to make it simpler for companies to categorise employees as unbiased contractors.”
State Legal guidelines Additionally Apply
Along with complying with the brand new federal rule, companies have to hold state legal guidelines in thoughts. For instance, California regulation makes use of the ABC check to find out if employees might be correctly categorized as unbiased contractors as a substitute of workers.
“The ABC check is remarkably totally different from the federal rule,” Yonahara says. She explains that below the ABC check, an individual shall be thought-about an worker as a substitute of an unbiased contractor except the hiring entity demonstrates that every one the next circumstances are happy. The employee should:
- (A) Be free from the corporate’s management and route in reference to the efficiency of the work;
- (B) Carry out work that’s exterior the same old course of the hiring entity’s enterprise; and
- (C) Be typically engaged in an independently established commerce, occupation, or enterprise of the identical nature as that concerned within the work carried out.
Yonahara says the B prong of the ABC rule is probably the most problematic issue and has compelled California employers to reclassify quite a few employees as workers.
Tammy Binford writes and edits information alerts and publication articles on labor and employment regulation matters for BLR internet and print publications.