OPERATORS & REGULATORS: In one of the most helpful moves made by the NLA in recent history, NLA attorneys spell out everything you need to know about compliance with labor laws specific to the industry, including the hot topic of "employee vs. independent contractor.”
The NLA planned to introduce a new "primer" or guide at the LCT Eastern Conference next week. I am delighted that they couldn't keep it to themselves for another week. It simply is too hot, too relevant, and too important to wait another day. Every day, battles rage on with industry vets about what is legal and what is not. If you have a chauffeur on call, do you have to pay him? If he crosses state lines and you have DOT authority, does that automatically make the chauffeur exempt from overtime laws? It does not! More importantly, in my personal crusade to educate the industry about the pitfalls of the independent contractor model, NLA general counsel Keller and Heckman, LLP based in Washington, D.C. have provided me more armaments.
The guide provides information about the general requirements of federal wage and hour laws and the responsibility to properly classify workers. It is a quick reference to federal law as it applies to us. It does not address individual state labor laws, but it sure is a great start to educating the industry on compliance.
The NLA issued a disclaimer saying, "Nothing contained in this guide should be viewed as the opinion of the NLA nor is the guide meant to be considered legal advice." However, I would say the NLA sees a critical need for this document or they wouldn’t spend the time and money passing it out. I also would say you should still seek the advice and guidance of a labor attorney in your own state if you have any questions about your business model.
With chauffeur wage actions and lawsuits gaining attention, labor issues are on the radar of many industry people. If you get caught with employees misclassified as independent contractors, the financial penalties could spell certain doom as you are forced to pay back taxes on behalf of the employee and the company, along with fines and interest. All it takes is one single employee to blow the whistle and you may experience a major shakeup and day of reckoning. I know because I’ve been there and learned that the hard way.
On to my favorite topic — employee vs. independent contractor — let me just share the guidance of the attorneys for the NLA in this space today. The words in bold represent some of the most common mistakes operators make in compliance.
Independent Contractors vs. Employees
If an individual hired to perform work for a firm is a true independent contractor, no employment relationship and therefore no FLSA coverage exists. The Department of Labor and courts determine whether a worker is an “employee” on a case-by-case basis, irrespective of that worker’s title. In making this determination, the Department of Labor will generally review the employer’s right to direct and control the individual’s work. It is likely that a worker brought in to complete a specific project for the company (e.g. a plumber or electrician) will be considered an independent contractor. However, in many instances where a worker is hired by a company, the Department of Labor will consider the worker to be an employee subject to the FLSA.
A major difference between an “independent contractor” and “employee” is that an employer can control the tasks performed by an employee and how those tasks are completed. Conversely, an employer has considerably less control over the way an independent contractor fulfills his contractual obligations. The IRS uses a 20-factor test in determining whether an employee is in fact an independent contractor. The more factors met in this test, the greater likelihood that the person is properly classified as an independent contractor.
The following are the principal factors considered by the IRS when determining whether an employee is correctly classified as an independent contractor:
1. Degree of Control. Does the employer have the right to control the method or manner of the job to be performed?
2. Right to Discharge. Can the employer terminate the worker even if the worker
meets his or her obligations?
3. Right to Delegate Work. Can the worker bring in whomever she wants to
accomplish the contract?
4. Hiring Practices. Does the worker have the right to hire and fire assistants that he or she uses in performing the contract?
5. Pay Practices. Is the worker paid by the job as opposed to by the hour, week or other calendar interval?
6. Training. Does the employer provide any type of training other than orientation to the job?
7. Skill. Is the worker viewed as a skilled worker?
8. Duration of Relationship. Is the worker hired for a specific time period?
9. Control Over Hours of Work. Is the worker allowed to set his or her own hours?
10. Independent Trade. Is the worker free to work for any number of persons or firms simultaneously?
11. Furnishing of Tools. Can or must the worker provide his or her own tools?
12. Place of Work. Does the worker perform his or her job off the employer’s
13. Profit and Loss. Does the worker have the opportunity for profit or loss?
14. Intent of the Parties. Is the parties’ intent to create an independent contractor
relationship documented, i.e., by a contract?
15. Principal in Business. Is the worker a principal in his or her own business?
16. Sequence of Work. Can the worker determine the sequences of the work
performed outside the employer’s control?
17. Reports Required. Is the worker required to submit regular oral or written reports or to attend organization meetings?
18. Same Work as Regular Employees. Does the employer have the worker perform the same type of work as its regular employees?
19. Integration. Does the employer engage the worker to do something that is part of the daily company operations?
20. Industry Customs. Does the employer’s industry have a definite custom of
independent contractor classification?
— Jim Luff, LCT Contributing Editor