The Good, the Bad and the Ugly: Recent Developments on Independent ContractingNovember 29, 2018
Lori BrownCEO, [email protected]
@labrown1419
Former Littler Shareholder Former General
Counsel/Head of HR of Global Security Organization
Follow Us on Twitter: @Compliance_HR
CHR Webinar November 2018 2
1. Q & A Box on your screen (questions are confidential – visible to presenters only)
2. E-mail me at [email protected] –monitored throughout today’s presentation (attendees will not be mentioned by name or company)
3. E-mail Tammy at [email protected]
Answering Your Questions
CHR Webinar November 2018 3
1. Full slide presentation (pdf format)2. Link to recorded audio presentation3. Littler White Paper on Dynamex
4. ComplianceHR Free Trial Code: Independent Contractor
What You’ll Receive
CHR Webinar November 2018 4
I. The Good – DOL’s new Field Assistance Bulletin II. The Bad – California’s Dynamex decision III. The Ugly – The IC compliance challenge and how to solve it
OBJECTIVES FOR TODAY’S SESSION:
CHR Webinar November 2018 5
Tammy McCutchenVP Strategy, [email protected]
@TDMcCutchen
Littler Principal Former Administrator, US-DOL,
Wage & Hour Division A leading authority on federal and state wage
and hour laws who now represents and counsels management clients in connection with all types of labor and employment matters
Regularly serves as a consulting or testifying expert witness in wage-hour collective and class actions
CHR Webinar November 2018 6
Today’s Featured Speaker
Critical Benefits and Protections Depend on Employment Status Minimum Wage & Overtime Family & Medical Leave Workplace Safety (OSHA) Civil Rights Laws Unemployment Insurance Workers Compensation Affordable Care Act Right to Unionize (NLRB)
Loss of Tax Revenue
Studies estimate that the federal government loses between $2.7 to $4.3 billion annually
States studies have shown millions in annual losses of tax, unemployment and workers’ compensation revenue Ohio, $498 million Pennsylvania, $281 million Massachusetts, $278 million Illinois, $216 million
Why is Independent Contracting Under Attack?
CHR Webinar November 2018 7
Federal agencies, state agencies, unions and other employee advocates focused on stopping “wage theft”
Pressure From All Sides
CHR Webinar November 2018 8
A Perfect Storm
IRS
DOL States Agencies
Unions
• Too many results-oriented legal tests create compliance challenges
• Results of litigation and agency action often are not predictable
• The results often do not conform to the expectation of either party
CHR Webinar November 2018 9
Employee or IC: Defining the Problem
Federal law alone has three different tests for determining IC status
Layered on top of these, states may have up to six different tests under different laws
CHR Webinar November 2018 10
Over 100 Different Legal Tests in the US
IRS 20-Factor Test
FLSA Economic
Reality Test
DardenCommon Law Test
Over 100 State
Law Tests
1. No instructions – ICs do not receive instructions as to how to accomplish a job
2. No training – ICs do not receive training from the company
3. No integration – The company’s operations do not depend on the service of IC
4. Services do not have to be rendered personally –ICs have the right to hire others to assist them
5. Control their own assistants -- ICs control the work activities of their assistants
6. Not a continuing relationship7. Work hours are set by the IC8. Time to pursue other work – An IC is not required to
work full-time for the company9. Job location – Unless the services cannot be
performed elsewhere, an IC has the right to choose where the work will be done.
10. No requirements on the order or sequence of work – ICs have control over how a result is accomplished
11. No required reports – ICs are not required to file interim or progress reports
12. Payment for the result – ICs re paid by the job, not based on time spent performing the work
13. Business expenses – ICs are responsible for their incidental expenses
14. Own tools – ICs provide their own equipment/tools15. Significant investment – An IC’s investment in
his/her trade is bona fide, essential, and adequate16. Possible profit or loss – ICs bear the risk of
realizing a profit or incurring a loss17. Working for multiple firms – ICs are free to work for
more than one firm at a time18. Services available to the general public – ICs
make their services available to the general public19. Limited right to discharge – ICs are not terminable
at will, but only for breach of contract20. Liability for non-completion – ICs are liable for
failing to complete the job in accordance with the contract
CHR Webinar November 2018 11
IRS 20-Factors Test
1. The skill required
2. The source of the instrumentalities and tools
3. The location of the work
4. The duration of the relationship between the parties
5. Whether the hiring party has the right to assign additional projects to the hired party
6. The extent of the hired party's discretion over when and how long to work
7. The method of payment
8. The hired party's role in hiring and paying assistants
9. Whether the work is part of the regular business of the hiring party
10. Whether the hiring party is in business
11. The provision of employee benefits
12. The tax treatment of the hired party
CHR Webinar November 2018 12
Darden Common Law Test
1. The extent to which the services rendered are an integral part of the principal's business.
2. The permanency of the relationship.
3. The amount of the alleged contractor's investment in facilities and equipment.
4. The nature and degree of control by the principal.
5. The alleged contractor's opportunities for profit and loss.
6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
7. The degree of independent business organization and operation.
CHR Webinar November 2018 13
FLSA Economic Reality Test
“In sum, most workers are employees under the FLSA’s broad definitions. The very broad definition of employment under the FLSA as “to suffer or permit to work” and the Act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.”
CHR Webinar November 2018 14
Administrator’s Interpretation 2015-1
Economic dependence is the test
No single factor governs
The total activity or situation controls
Immaterial facts Where work is performed
Absence of a formal employment agreement
licensing by state/local government
The time or mode of pay
Fact Sheet 13
CHR Webinar November 2018 15
The following practices do not defeat independent contractor status: Conducting background checks (criminal history, credit checks, licensing) Requiring ICs to have a TEIN, liability insurance or a performance bond Screening and recommending ICs based on the client’s parameters and preferences, when hiring and
firing is the client’s decision Facilitating communication between the contractor and client Providing advice on typical or market pay rates to the contractor and client Charging the client a one-time fee for matching it with the contractor Collecting timesheets and performing payroll-related functions such as calculating amount owed to the
contractor, making tax deductions and issuing checks Providing ICs with an option to purchase discounted equipment or supplies
DOL Field Assistance Bulletin 2008-4
CHR Webinar November 2018 16
www.dol.gov/whd
CHR Webinar November 2018 17
May be multi-factor balancing tests or conjunctive tests with multiple required elements
Some state laws have a presumption of employee status; but in other states, if a contract provides that the worker is an IC, that creates a presumption of IC status
The “ABC” Conjunctive TestA. The contractor is free from control and
direction by the company;B. The services to be performed by the
contractor are either outside the usual course of the company’s business or will be performed outside of the company’s place of business; and
C. The contractor is customarily engaged in an independently established trade, occupation, profession or business.
CHR Webinar November 2018 18
State Tests
Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor
Adopted the Massachusetts’ version of the ABC test, under which workers are presumed to be employees unless all three of the following conditions are met:
A. The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
B. The service is performed outside the usual course of the business of the employer; and,
C. The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
California Dynamex Decision
CHR Webinar November 2018 19
Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor
Maine’s test for wage-hour, workers comp and unemployment has 5 mandatory requirements plus an additional 3 out of 7 requirements must be met.
Wisconsin’s unemployment test for has 5 mandatory requirements plus an additional 6 out of 9 requirements must be met.
The Most Difficult IC Test?It’s Not California
CHR Webinar November 2018 20
Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor
Uncertain and unpredictable results under multiple federal and state tests has lead to increased litigation, even in industries that have used independent contractors for decades
Drivers Financial services reps Real estate agents Professionals Media content providers Construction workers Fitness instructors NFL cheerleaders Exotic dancers
CHR Webinar November 2018 21
The Result
Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor
Results based on Littler study of 1,773 reported federal and state court decisions
CHR Webinar November 2018 22
Who is Winning?
Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor
CHR Webinar November 2018 23
The award-winning joint venture that combines the subject matter expertise of Littler with the
revolutionary software of Neota Logic.
The first of its kind suite of intelligent applications delivering expert guidance at internet speed and scale.
Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor
Let’s Check it Out!
Footer for the document here 24
Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor
CHR Webinar November 2018
“Navigator IC allows us to provide our clients with a deep detailed
assessment at a speed that prevents impacts to their business
operations.”
- Vice PresidentManaged Services Provider
CHR Webinar November 2018 25
Compliance Moves Fast. You Can Too!
Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor
Do not classify individual workers or former employees as ICs
Do not engage ICs to perform the same work as employees
Do not engage ICs for full-time work over a long period of time
Do not prohibit ICs from working for other companies
Do not provide training, instruction or otherwise attempt to control how work is performed
Do not provide tools or equipment
Do not reimburse for business expenses
Do not conduct performance reviews –limit review of IC work to safety, quality control and compliance with contract specs
CHR Webinar November 2018 26
Avoid the Red Flags
Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor
Compliance Made Easy….Why Wait?
CHR Webinar November 2018 27
Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor
Questions?
Free 7 Day TrialE-mail: [email protected]: Independent Contractor
Thank you!Don’t forget about your free trial!
Email us at: [email protected] Code: Independent Contractor [email protected] [email protected]