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Showing posts with label economic reality test. Show all posts
Showing posts with label economic reality test. Show all posts

Wednesday, January 06, 2021

Are Your Staff Employees or Independent Contractors? A New Regulation Answers The Question

During the last two weeks of his Presidency, Trump's Department of Labor just revised the test for whether an individual is an independent contractor or employee under the Fair Labor Standards Act. 


This is significant because employees are entitled to minimum wage and overtime whereas independent contractors are not. 


If an employer misclassifies a staff member as an independent contractor when such staff member should be classified an employee, it can result in a devastating blow to the employer who will be exposed to statutory penalties, back pay, attorneys' fees and more. 


Now, Trump's government is using the "economic reality" test to determine employee status. 


According to the government, "the ultimate inquiry is whether, as a matter of economic reality, the worker is dependent on a particular individual, business, or organization for work (and is thus and employee) or is in business for him- or herself (and is thus an an independent contractor)." 


Under this test, the Department of Labor or a Court hearing the case will look to five distinct factors to answer the test. However, two of those factors now have more probative value in answering the question than the rest. These two key factors are:

  1. The nature and degree of the worker's control over the work; and
  2. The worker's opportunity for profit or loss. 

The other factors, of less importance, are:
  1. The amount of skill required for the work;
  2. The degree of permanence of the working relationship between the individual and the potential employer; and 
  3. Whether the work is a part of an integrated unit of production.
Regardless, employers better take note of this change and analyze their staff's true work to ascertain if they are classified properly. If this is too much, you better hire a consultant to do the job NOW.
 

Here's a question

While the government argued in support of this new test by pointing to the need for clarity for business, is this the time to tax companies with new rules in the middle of a pandemic where small businesses are closing every day? 

More so, with a change in the Presidency less than two weeks away, will Biden just change this back next month? 

This new regulation isn't effective until March 8, 2021, so Biden could theoretically undo it before it even takes off. 

Should he?