In the July 15th Department of Labor administrator’s interpretation the issue of independent contractors is explored further. This is part of an intensified effort to properly classify employees.
This is very important to employers who think their obligation is met when they simply pay the individual the agreed “price” and assume they are done when they send the 1099. It could very well be that the individual is an employee who was entitled to minimum wage and employee benefits. Some of these examples were in the publication.
- Is the Work an Integral Part of the Employer’s Business? Local contractors will find this example interesting. The guidance says “For a construction company that frames residential homes, carpenters are integral to the employer’s business because the company is in business to frame homes, and carpentry is an integral part of providing that service”.
- Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss? “A worker provides cleaning services for corporate clients. The worker performs assignments only as determined by a cleaning company; does not independently schedule assignments, solicit additional work from other clients, advertise his services, or endeavor to reduce costs. Earnings may fluctuate based on the work available and his willingness to work more. This lack of managerial skill is indicative of an employment relationship between the worker and the cleaning company.”
- How Does the Worker’s Relative Investment Compare to the Employer’s Investment? “A worker providing cleaning services receives referrals and sometimes works for a local cleaning company. The worker invests in a vehicle that is not suitable for personal use and uses it to travel to various worksites. The worker rents her own space to store the vehicle and materials. The worker also advertises and markets her services and hires a helper for larger jobs. She regularly (as opposed to on a job-by-job basis) purchases material and equipment to provide cleaning services and brings her own equipment (vacuum, mop, broom, etc.) and cleaning supplies to each worksite. Her level of investments is similar to the investments of the local cleaning company for whom she sometimes works. These types of investments may be indicative of an independent contractor.”
- Does the Work Performed Require Special Skill and Initiative? “A highly skilled carpenter provides carpentry services for a construction firm; however, such skills are not exercised in an independent manner. For example, the carpenter does not make any independent judgments at the job site beyond the work that he is doing for that job; he does not determine the sequence of work, order additional materials, or think about bidding the next job, but rather is told what work to perform where. In this scenario, the carpenter, although highly-skilled technically, is not demonstrating the skill and initiative of an independent contractor.”
- Is the Relationship between the Worker and the Employer Permanent or Indefinite?
An editor has worked intermittently with fifteen different publishing houses over the past several years. She markets her services to numerous publishing houses. She negotiates rates for each editing job and turns down work for any reason, including because she is too busy with other editing jobs. This lack of permanence with one publishing house is indicative of an independent contractor relationship.
- What is the Nature and Degree of the Employer’s Control? ‘A registered nurse who provides skilled nursing care in nursing homes is listed with Beta Nurse Registry in order to be matched with clients. The registry interviewed the nurse prior to her joining the registry, and also required the nurse to undergo a multi-day training presented by Beta. Beta sends the nurse a listing each week with potential clients and requires the nurse to fill out a form with Beta prior to contacting any clients. Beta also requires that the nurse adhere to a certain wage range and the nurse cannot provide care during any weekend hours. The nurse must inform Beta if she is hired by a client and must contact Beta if she will miss scheduled work with any client. In this scenario, the degree of control exercised by the registry is indicative of an employment relationship.”
Some employers feel they are off the hook if they run their employees through a staffing agency. But again, caution is advised. A recent South Carolina Court case held an employer liable in a sexual harassment case even though the plaintiff was employed through the staffing agency.
The message is clear that employees need to be carefully classified for multiple reasons, not just employee benefits. Just paying the employee via a 1099 rather than a W-2 isn’t enough.
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