By Tammy McCutchen
On June 7, 2017 the U.S. Department of Labor’s Wage & Hour Division withdrew its 2015 guidance on independent contracting which had concluded that “most workers are employees.” Good news, but we may have been cheering DOL’s decision a bit prematurely. In its withdrawal of the 2015 guidance, DOL stated that removal of the guidance “does not change the legal responsibilities of employers under the Fair Labor Standards Act” and that the agency “will continue to fully and fairly enforce all laws within its jurisdiction.” DOL continues to prosecute dozens and dozens of independent contractor investigations across the country. Recently, senior career DOL officials stated that withdrawal of the guidance did not have any impact on pending investigations because it merely described the current law, and they would continue to apply that law.
Bottom line: Now is not the time to stop IC compliance efforts.
Independent contractor misclassification is perhaps the most difficult compliance issue that employers face today – with three different legal tests under federal law (IRS 20-factor, FLSA “economic realities” and the Darden common law test ) and up to four different legal tests in each state layered on top of federal tax, wage-hour, unemployment and workers’ compensation.
If your company has a contingent workforce, to avoid misclassification you can benefit by knowing the risk factors and pre-screening your contractors. Risk factors for misclassification include engaging contractors who:
- Are former employees;
- Perform the same work as employees;
- Do not perform work for any other company;
- Does not have a tax employer identification number (TEIN); and/or
- Do not own the tools or equipment necessary to perform the work.
- Additional risk is created if your company:
- Engages 1099 workers to perform work that is essential to the business;
- Controls where, when and how work is performed;
- Reimburses the contractor for business expenses;
- Requires contractors to sign a non-compete;
- Provides training to contractors; and/or
- Pays contractors by the hour or a salary, rather than by the job.
ComplianceHR’s Navigator IC application can help you with the time-consuming and confusing screening of contractor and company risk factors. Users complete an easy-to-use questionnaire and the application rapidly analyzes each individual fact pattern under all applicable federal and state tests. Each assessment is saved to your ComplianceHR dashboard, so you can quickly return to the forms you’ve generated in the past.
In addition to delivering an actionable risk assessment, Navigator IC also provides a report on how to lower the risk of misclassification together with a summary of applicable laws and a transcript of questionnaire answers.
Contact Cara Freling at freling@compliancehr.com if you would like a demo of the Navigator IC application and to learn more about how you too can begin to enjoy the benefits of assessing risk for your contingent workforce.
