Determining the employment status of workers can be a process fraught with with risk. Being clear on a worker's status is a matter of being up to date on the law.

There is still some confusion on the part of employers and managers regarding the "rules" for classifying workers as either an independent contractor vs employee. Much of this has stemmed from government agency's shifting interpretation of the existing guidelines.

The Obama administration's Department of Labor (DOL) issued Administrator's Interpretation No. 2015-1 back in July 2015. This document addressed the classification of independent contractors as employees under the Fair Labor Standards Act (FLSA).

The Wage and Hour Division, or WHD, adopted a similarly comprehensive view of employment in this AI, stating, "most workers are employees under the FLSA's broad definitions." This concerned many employers as it implied that the DOL would now presume most workers could (or should) be classified as employees.

Although the AI did not have the force of law, it set the tone and direction for the DOL and, subsequently, other proposed changes in the FLSA. In fact, the document proposed a broad test that would classify most workers as employees who were economically dependent on a particular organization.

Recent Changes from the New Labor Secretary

On June 7, 2017, the DOL withdrew Administrator's Interpretation No. 2015-1. DOL Secretary Alex Acosta announced that the Department was rescinding Obama administration guidance on independent contractor misclassification.

For employers, this was a positive move that meant businesses once again have wider latitude to hire contracted labor without the risk of being charged with trying to dodge the IRS or minimum wage or overtime rules.

A major result of this decision by the current administration is that classifying a worker as decision means an independent contractor or an employee can be based again on the simple six-part test that was previously endorsed by the U.S. Supreme Court. This is the same test which had guided DOL's enforcement standards for decades.

Cautionary Note:

The DOL has not officially adopted the old test for workers' status. As a result, employers are still required to follow the classification provisions of the Fair Labor Standards Act (FLSA). However, it is believed by many legal observers that, by withdrawing the guidance, the Trump administration's DOL is signaling a more tolerant enforcement approach.

Here are the traditional six factors established by the Supreme Court decades ago:

1. The extent to which the services rendered are an integral part of the employer's business
2. The permanency of the relationship between the employer and the worker
3. The amount the worker invests in facilities and equipment
4. The nature and degree of control asserted over the worker by the employer
5. The worker's opportunity for profit and loss
6. The amount of initiative, judgment or foresight in open-market competition with others required for the worker's success.

The Devil is in the Details with Employee Classification

A recent misclassification case is Lawson v. GrubHub, Inc., in the Northern District of California.  The case is currently pending and at issue is whether the plaintiff, a former delivery driver for GrubHub, was improperly classified as an independent contractor rather than as an employee.

The plaintiff alleged that he was required to attend training and meetings, and that time was scheduled in which drivers had to be available to accept deliveries.  GrubHub claimed that the plaintiff was free to work for other businesses, that he was not required to accept deliveries during particular times, and that delivery services are not part of their core business.

According to an article from Rumberger Kirk & Caldwell,

"The case is being closely watched by other on-demand companies, as a ruling that the plaintiff should have been classified as an employee will certainly be used by other workers to bolster similar misclassification claims."

HR Compliance and Caution

One of the informal roles of the HR manager is that of being aware of change. Staying informed and up-to-date not only of regulatory and legislative changes, but of the social and technological shifts that spell opportunity for a business, is essential.

In addition to a growing and demanding role in recruiting, hiring, and continually training employees, the HR staff will still be responsible for every other function they are typically tasked with such as payroll management, tax filings, employee records compliance, and so forth.

If you are looking for reliable help with determining employee classification, we can help. Get your Free Download: Payroll Outsourcing Guide to help you make an informed decision or call Accuchex Payroll Management Services at 877-422-2824.