Employers are facing increasing scrutiny in the classification and labels of the employees vs. independent contractors. Many employers will rely on their own labels as described or categorized in company handbooks and internal standards manuals. However, this reliance is misplaced, and may open the employer up to legal battle down the road. Most often employees receive more protection than independent contractors on the basis that independent contractors are, essentially, in business for themselves and do not serve at the will of the employer. Independent contractors usually do not receive health benefits, are not subject to FMLA leave, are not subject to minimum wage requirements, and are unable to benefit from unemployment compensation insurance. Employees, on the other hand, receive the protections of almost all of these benefits.
As noted in a previous post, the Supreme Court considers several separate factors in determining whether the worker is an employee or an independent contractor. Some of these factors include the length of services provided, the party responsible for the purchase of materials related to the work, and the ability to complete same or similar work for multiple employers at a time. Often times these topics are clearly spelled out in the contract, but several other factors may not be so forthcoming. It is important to make sure to have a clear reasoning and rationale to the classification that falls in line with the Supreme Court’s classifications. If saving a few dollars on the front end to avoid unemployment compensation, health benefits, or wage requirements is the sole intent, an employer could pay ten to twenty times that in legal fees defending such determination down the road.
As though the classification of employee versus independent contractor were not confusing enough, the Department of Labor has recently been tasked with “simplifying” the regulations for “exempt” versus “nonexempt” employees under the Fair Labor Standards Act. For many years the difference between these two classifications has relied on three test, and most heavily on a “duties” test. Although the other tests are used, the “duties” test seems predominant but is significantly confusing given the wide range of job responsibilities and expectations in many employment situations. The Department of Labor has since set forth several proposed changes to the regulations. One such change, is the idea to focus more on the salary of the employee. The salary exemption amount for the FLSA is currently around $23,600 per year. The proposed change would raise that to over $50,000. A change of this proportion is thought to automatically switch exempt employees making less that $50,0000 to a non-exempt status, regardless of the duties test. As such it would have a significant impact on many employers whose employees are currently considered exempt.
As more changes or propositions come down from the Department of Labor, it will be increasingly important to make sure that both employers and employees are keeping accurate and complete documentation as to the expectations of their income and work responsibilities. If there are any questions or concerns, you should always seek the advice of an attorney.
As with any rule, there are exceptions.
Please seek professional assistance with any questions or specific situations.
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