by Tom Woods, Chairman, National Association of Home Builders
The U.S. Department of Labor (DOL) on July 15 issued guidance regarding application of the criteria used to assess whether a worker is properly classified as an independent contractor under the Fair Labor Standards Act, which determines overtime, unemployment insurance and other obligations. Independent contractors are not covered under the act.
The test used under the FLSA is one of several used at the federal level to determine worker classification. The Internal Revenue Service, the National Labor Relations Act, and Employee Retirement Income Security ACT (ERISA), each use a different test to distinguish independent contractors from employees.
The DOL document does not appear to signal a shift or change in the law as it relates to how workers are classified as either employees or independent contractors. Rather, it clarifies the factors to be considered in making such a determination.
On its face, this “interpretation” does not appear to place any new or additional burdens on the industry. However, given the emphasis on the construction industry to date, and in the guidance document, NAHB will have to be vigilant in monitoring enforcement to determine how DOL is applying the “economic realities” test in the field. Arguably, the factors leave a lot of room for interpretation, and the document confirms there is clearly a bias towards worker status as employees.
We are also concerned that the Administration is too focused on enforcement and providing less individualized assistance to employers who are in need of compliance information. NAHB plans to urge Congress to use its oversight authority to ensure DOL hasn’t overstepped its boundaries.
NAHB has provided analysis on the DOL guidance to help you determine whether a worker is an independent contractor or employee.
We will continue to monitor this situation closely.
In a victory for your Home Builders Association and small business employers across the nation, both the House and Senate Labor, Health and Human Services Appropriations Committees have rejected additional funding for the U.S. Department of Labor (DOL) to address initiatives regarding misclassification of workers.
The National Association of Home Builders (NAHB) spearheaded this effort, along with its business partners in the Coalition to Promote Independent Entrepreneurs, to urge House and Senate lawmakers to deny a White House funding request for an additional $10 million in the fiscal 2016 budget for DOL to implement worker misclassification enforcement and detection activities.
Last year, DOL granted $10.2 million to 19 states to implement or improve worker misclassification programs. The funds were designated to help states identify instances where employers improperly classify employees as independent contractors or fail to report the wages paid to workers at all.
While several states have existing programs designed to reduce worker misclassification, this was the first year that DOL awarded grants dedicated to this effort.
Moreover, the grant included a “high-performance bonus” to four states (Maryland, New Jersey, Texas and Utah) totaling $2 million for their improved efforts in detecting incidents of worker misclassification.
This could create an incentive for a state workforce agency, when making a worker-status determination, to find misclassification where none exists, the coalition told lawmakers.
Further, NAHB and its business allies said that any attempt that undermines the legitimate uses of independent contractors in the marketplace will have a detrimental impact on companies that do business with independent contractors.
House and Senate lawmakers agreed with us that state workforce agencies should focus on educating their employees about the laws regarding independent contractors rather than appropriating money incentivizing a worker misclassification finding.
If you are an Independent Contractor, or you hire independent contractors, you may want to analyze your records and methods of operation because the IRS and Department of Labor have recently teamed up and are now on the lookout for appropriate use of Independent Contractor Status.
According to the IRS website an Independent Contractor is someone who is self- employed and not controlled by an employer (dictating how a job will be done and what will be done). If this description is not cut and dry for you there are several scenarios and categories to look into. Visit the IRS website by clicking here to review ways to determine which category applies to you.
Based on which type of Independent Contractor scenario you fall into you will want to take a look at the employment tax obligations that may help you avoid future issues. These can also be found at the IRS website mentioned above.
Review these common tax issues to help ensure that an auditor isn’t standing in your office.
- Proper documentation of time worked. Track overtime and not have back pay due to an employee
- Taxes due for both the company and the employee on income from cash payments.
By taking a look now you can hopefully avoid any issues in the future.