The decision to classify a worker as an independent contractor, rather than as an employee, carries significant legal implications. Misclassifying employees as independent contractors can result in employer liability for unpaid payroll taxes, unpaid unemployment and workers’ compensation premiums, and responsibility for failure to provide the various rights afforded under employment laws to employees but
On Jan. 25, 2019, the National Labor Relations Board (NLRB) addressed its independent contractor test in a case involving airport shuttle drivers for the franchise, SuperShuttle. The SuperShuttle DFW, Inc. decision overruled the NLRB’s 2014 decision in FedEx Home Delivery, which the Board criticized as incorrectly limiting the significance of a worker’s entrepreneurial opportunity for economic gain in determining independent contractor status.…
Continue Reading NLRB overrules Obama-era precedent for independent contractor test
On June 7, 2017 the Secretary of Labor, Alexander Acosta, announced that the US Department of Labor (DOL) was withdrawing its 2015 and 2016 guidance on joint employment and independent contractors. The Obama-era guidance expanded how joint employment was defined to include employers that have indirect or potential control over the terms and conditions of…
Following on the heels of its proposed rule expanding the number of employees entitled to overtime under the FLSA, the Department of Labor’s Wage & Hour Division has issued an Interpretation Letter that addresses independent contractor misclassification. Though the Letter, issued by WHD Administrator David Weil, contains no earthshaking new compliance obligations for employers, it…
Yesterday, the Sixth Circuit revived the Equal Employment Opportunity Commission (EEOC)’s lawsuit against Skanska USA Building, Inc., holding that it was the de facto employer for subcontracted employees, a decision with potentially broad-reaching implications for employers with subcontracted employees and independent contractors, particularly in the construction industry.…
Continue Reading Sixth Circuit Holds that Subcontracted Employees Can Sue the General Contractor on Construction Project as Their De Facto Employer
Here is one more potential advantage of using independent contractors rather than employers that so far has flown below the radar screen. According to a federal district court in Wisconsin, the Fair Credit Reporting Act’s disclosure obligations do not apply to independent contractor relationships.…
Continue Reading Federal Court: FCRA Does Not Apply To Independent Contractor Relationships
We first introduced you to the Voluntary Compliance Settlement Program (VCSP), a program launched on the on the heels of the IRS announcing its three-year plan to increase audits of independent contractors (Announcement 2011-64), last September. In that post, we discussed the potential advantages and pitfalls of the VCSP. This post takes another look into the VCSP in light of the IRS’s FAQs, which answers a lot of taxpayers’ concerns but not all of them.
By way of background, the VCSP was designed to provide eligible employers partial relief from the federal employment taxes and penalties that typically result from misclassifying workers as independent contractors. The VCSP is supposed to work like an amnesty program. It offers eligible taxpayers a one-time chance to come forward and reclassify their improperly-classified independent contractors as employers for future tax periods with limited federal employment tax liability for the past nonemployee treatment. Employers accepted into the program pay an amount 10% of the employment tax liability (calculated at reduced rates) effectively equaling just over 1% of the wages paid to the reclassified workers for the most recent tax year – a substantial savings – due with the signed VCSP closing agreement to the IRS. The kicker… no interest or penalties and no audit on payroll taxes related to the reclassified workers.
Many taxpayers quickly lost faith in the VCSP when they learned that the IRS and the Department of Labor (DOL) entered into a Memorandum of Understanding (MOU) agreeing to share information and other data relating to worker misclassification. The MOU also provided for information-sharing agreements between the IRS and state taxing authorities and raised a huge red flag for employers: Is the IRS going to share my information with the DOL and/or state/local taxing authorities and open up a whole new can of worms for me?
Taxpayers Can Breathe a Little Easier, But Don’t Go Getting Too Comfortable: Well, the answer to this all-important question, among 21 others, was provided in a FAQ sheet on the VCSP concerns. Some of the high points are:
- Despite the MOU, the IRS will not share information about VCSP applicants with the DOL or state agencies. So, while the IRS will share some information about employee misclassification with the DOL and state taxing agencies, it will not share applicant information.
- Taxpayers who apply to the VCSP but who are rejected will not automatically trigger initiation of a Federal audit. Mind you, taxpayers may be audited for something else, but not for applying for the VCSP.
- By signing the VCSP closing agreement, a taxpayer is not admitting liability for wrong during past years. The VCSP addresses future years only.
On Tuesday, May 25, 2010, Representatives Phillips and Driehaus introduced in the Ohio General Assembly a bill that effectively would create a single definition of “employee” for purposes of Ohio workers’ compensation, unemployment compensation, payroll taxes, minimum wage and other purposes. Presently, each statute contains its own test for determining whether an individual is an employee or an independent contractor, often resulting in conflicting results.
If passed, this legislation would create a single seven-factor test for evaluation whether an individual truly is an independent contractor.
For an individual to be an independent contractor under H.B. 523, all of the following factors would have to be met:
- The individual has been and continues to be free from control and direction in connection with the performance of the service.
- The individual customarily is engaged in an independently established trade, occupation, profession, or business of the same nature of the trade, occupation, profession, or business involved in the service performed.
- The individual is a separate and distinct business entity from the entity for which the service is being performed or, if the individual is providing construction services and is a sole proprietorship or partnership, the individual is a legitimate sole proprietorship or a partner in a legitimate partnership.
- The individual incurs the main expenses and has continuing or recurring business liabilities related to the service performed.
- The individual is liable for breach of contract for failure to complete the service.
- An agreement, written or oral, express or implied, exists describing the service to be performed, the payment the individual will receive for performance of the service, and the time frame for completion of the service.
- The service performed by the individual is outside of the usual course of business of the employer.
The Employee Misclassification Prevention Act, (S. 3254) introduced Thursday by Senator Sherrod Brown of Ohio, would amend the Fair Labor Standards Act to require companies to keep records of non-employees who work as independent contractors and to provide special penalties for misclassifying those workers.
The Act contains certain recordkeeping provisions that would require employers to keep records reflecting whether each worker is an actual employee or an independent contractor. The Act also would require employers to provide a written notice to all workers who perform labor or services informing them that they have been classified as either an employee or “non-employee,” directing them to a Department of Labor Web site for further information about the rights of employees under the law, and informing them to contact the Department of Labor if they have any questions about whether they have been misclassified. Penalties of $1,100 to $5,000 per worker may be imposed for a violation of the notice or recordkeeping requirements or for misclassifying an employee as a non-employee.
With the Ohio Attorney General’s enforcement eye now focused on the costs of misclassification, it is important for Ohio employers to understand the potential consequences if they are found to have misclassified workers as independent contractors.…
Continue Reading Ohio Focus on Worker Misclassification Warrants Second Look At Independent Contractor Relationships