DOL Announces Proposed Rule on Independent Contractor Status under the FLSA

On September 22, 2020, the US Department of Labor proposed a new rule to clarify whether a worker will be classified as an independent contractor or an employee under the Fair Labor Standards Act (“FLSA”). The proposed rule will be available for review and public comments for 30 days after it is published in the Federal Register.

The proposed rule adopts an “economic reality” test to determine a worker’s status. That test focuses on whether a worker is economically dependent upon an employer for work or is truly in business for themselves . Economic dependence is the ultimate inquiry. In applying this test, the two most important factors are:

  • Who exercises substantial control over key aspects of work performance? Where the worker sets their own schedule, selects projects, and retains the ability to work for an employer’s competitors, this factor will weigh in favor of independent contractor status. In contrast, where the employer sets the schedule, controls the workload, and requires the worker to perform work exclusively for that employer, this factor will weigh in favor of employee status.
  • Does the worker have an opportunity for profit or loss (i.e. an ability to affect their earnings by the exercise of their own management and initiative)? If the worker can earn more or lose profits based upon their own managerial skills or business acumen, for example by hiring helpers or choosing particular equipment or materials, this factor will weigh in favor of independent contract status. If the worker is unable to affect their earnings or is only able to do so by working more hours or working more efficiently, this factor will weigh in favor of employee status.

Other factors to be considered in assessing independent contractor vs. employee status under the FLSA include the amount of skill required for the work, the permanence of the working relationship between the parties, and whether the work performed by the individual is a component of the employer’s integrated production process for a good or service.

The DOL’s proposed rule emphasizes that the parties’ actual practice is key to the assessment of independent contractor status. What the parties state in a contract or what may be theoretically possible under a work arrangement is of little relevance if it differs from the reality of their working relationship.

Employers should keep in mind that many states have adopted their own tests for independent contractor status under their respective state wage and hour laws; these tests can differ from state-to-state. The tests may also vary based upon the state law issue being addressed, i.e. unemployment compensation eligibility, workers’ compensation coverage, employment tax liability, etc.

The issue of independent contractor versus employee status continues to challenge employers across all sectors throughout the U.S. We will continue to closely monitor the DOL’s proposed rule and other state-based developments in this area. In the meantime, it might be a good time to review your independent contractor agreements and work relationships within your organization. Your partners at Lake Effect HR & Law can help you ensure compliance while retaining the flexible and dynamic workforce that your organization needs. Contact us at info@le-hrlaw.com or 1-844-333-5253.

Illinois Provides Model for Newly Required Anti-Harassment Training

On April 30, the Illinois Department of Human Rights released a model training presentation that employers can use to comply with Illinois’ new sexual harassment prevention training requirement. An employer may use this model training, or it may develop a training specifically tailored to its organization, provided that the training meets the state’s minimum legal requirements.

In 2019, Illinois adopted a new law requiring employers to provide annual sexual harassment prevention training to all Illinois employees. This requirement also applies to employers based in other states that have one or more employees working remotely in Illinois or working at a customer’s worksite in Illinois. All Illinois employees must be trained by December 31, 2020. Restaurants and bars must also provide supplemental sexual harassment prevention training targeted specifically for those industries.

Two major points about the new training requirement from the state’s FAQs:

  • Although employers are not required to train independent contractors, Illinois strongly advises that independent contractors receive training if they work on-site at an employer’s workplace or interact with employees.
  • Employers should include in their anti-harassment training any employee who is based outside of Illinois but regularly works with employees in the state. For example, a manager based in Wisconsin who supervises employees working in Illinois should be included in the training.

While virtual training may be the only option in our current environment, employers should keep in mind that the EEOC has found that anti-harassment training is most effective when it is tailored to the specific workplace and workforce, as well as provided in-person, with interactive discussion, and by an experienced trainer.

The attorneys and HR professionals at Lake Effect HR & Law are ready and willing to assist and advise if you have questions related to anti-harassment or other employee training. Contact us at info@le-hrlaw.com or 1-844-333-5253.

Employers: Include NYC Independent Contractors in Your Anti-Harassment Training

Under the recently expanded New York City Human Rights Law (NYCHRL), employers must include independent contractors in their sexual harassment training. This is a major shift in how independent contractors are generally treated. Employers should include an appropriate disclaimer before providing anti-harassment training to an independent contractor to clarify that the training does not change their independent contractor status.

This training requirement applies to all New York employers with 15 or more total workers. “Workers” includes employees who work outside of New York City and independent contractors. This means that if a Wisconsin based employer has 14 employees in Wisconsin and 1 employee or independent contractor in New York City, that employer must provide the required sexual harassment training to the worker in New York City, and comply with the other applicable New York State and New York City laws. Note that as of February 8, 2020, the New York State Human Right Law will apply to all employers with at least 1 employee in New York.

The attorneys and HR professionals at Lake Effect HR & Law are ready and willing to assist and advise if you have questions related to mandatory anti-harassment training or independent contractors in Wisconsin or other states. Contact us at info@LE-hrlaw.com or 1-844-333-5253.

Tread Carefully on Independent Contractor Classifications

Employers should carefully review their practice of classifying a worker as an independent contractor. The increased scrutiny over worker misclassifications is spreading across the country, as states are grappling with how to attract a modern workforce and prevent employers from misclassifying workers to avoid some of the burdens of conventional employment.

California is a stark example. Earlier this month, the 9th Circuit Court of Appeals ruled that California’s stringent test adopted in 2018 for determining whether a worker is appropriately classified as an independent contractor applies retroactively. This means that employers may be forced to pay for lost wages and other benefits that were not paid to an independent contractor who should have been classified as an employee under the new law even if the employer fixed the misclassification after the new law was adopted. This has serious implications for a business with independent contractors in California.

Here at home, the law has not changed, at least not yet. But Wisconsin Governor Evers recently created the Joint Enforcement Task Force on Payroll Fraud and Worker Misclassification. Its stated purpose is to address the purported problem of employers classifying workers as independent contractors when they should be employees. Among other things, the Task Force will facilitate the coordination of state agencies involved in investigations and enforcement activities and recommend any necessary changes to current state law.

Wisconsin employers should expect a potential increase in investigations and enforcement actions as a result of the work by the Task Force. The state agencies involved are interested not only in recoupment of wages to workers but also in unpaid taxes to the state.

The attorneys and HR professionals at Lake Effect HR & Law are ready and willing to assist and advise if you have questions related to independent contractors and other worker classification matters. Contact us at info@le-hrlaw.com or 1-844-333-5253.

Lake Effect HR & Law, LLC
(844) 333-5253 (LAKE)
info@le-hrlaw.com

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