All companies must now be familiar with the Labor Department’s new rules defining independent contractor versus employee status for several reasons. In addition to working for principals as an independent worker, many rep firms hire employees to assist in their businesses. When are workers employees? When are they contractors? These are differences in definitions that have huge legal implications.
In light of recent cases involving Uber drivers, and a push to recover more revenue (e.g., last year the Labor Department forced companies to pay tens of millions of dollars in back wages to more than 100,000 workers in the janitorial, temporary help, food services, day care, and hotel industries), the Labor Department recently issued new guidelines intended to help companies answer that increasingly complicated question. The shift is to classify workers as employees, so EORA employers must be more careful because they owe a higher duty to employees than they do to independent contractors. Additionally, contractors aren’t eligible for overtime pay, unemployment insurance or workers’ compensation. They typically pay all their Social Security taxes compared to employees, who split their cost with employers.
The new standard is broader than guidelines previously followed by many states and the IRS. Now, a worker who is “economically dependent” on the employer should be treated as an employee; by contrast, a worker must be in business for themselves to be an independent contractor. No longer is the focus primarily on how much control the employer has over the worker.
Thus, businesses who utilize independent sales personnel or contractors who supply administrative, supervisory, or managerial duties should speak to their accountants about whether they should modify the arrangement to make them employees. Paying workers as employees could possibly minimize legal and tax exposure. If both parties still desire independent status, preparing a simple document reflecting this could help the parties clearly understand the legal relationship.
If you need guidance on the legal consequences of employee versus independent contractor status, contact an experienced employment attorney who will help ensure that your rights are protected. Call Steven Mitchell Sack at (917) 371-8000.