Having just spent time in a meeting with a not for profit where the financial person introduced her concerns over the number of Independent Contractors the organization seems to be paying, I remembered what C.J. Westrick spoke to a group of our Veteran Entrepreneurs about this subject and thought I needed to bring it to your attention. Her HR expertise is worth reviewing whether you are an I/C or the company hiring them.
If you want a follow up on the ABC Test for I/C, email me and I will send you her other article (email@example.com).
Is your Contractor Really Independent?
C.J. Westrick, SPHR
The U.S. Department of Labor (DOL) and California’s Division of Labor Standards Enforcement (DLSE) are now focused on raising the bar for independent contractors (I/Cs). It’s time to stop following so-called industry standards and think for yourself on whether or not you are compliant with your I/Cs.
In the past, much was made of whether or not you “controlled” the work of the I/C. Control has now dropped much lower on the list and the DOL and DLSE will be looking instead at the “economic realities.” This isn’t an easy test because it’s not just a checklist. The DOL is looking at a qualitative analysis of 6 factors that don’t provide you with practical and objective criteria… but when have they ever provided easy criteria? Here are the factors:
- What amount of the I/C’s work product is an integral part of your business?
- What level of risk does the I/C have regarding profit or loss based on his/her skill?
- What level of “investment” in the work do you and the I/C have?
- Does the work the I/C performs require special skills and initiative?
- How “permanent” is the relationship between you and the I/C?
- How much control do you have over the I/C or his/her work?
I’ve mentioned before that an I/C should have additional clients and receive no more than 80% of their income from you and this new direction from the DOL hasn’t changed my mind. Here are a few insights from Matthew Disbrow (an attorney with Honigman in Detroit) and Michael Droke (an attorney with Dorsey and Whitney in Palo Alto) that may help protect you:
- Use I/Cs sparingly because the DOL thinks most work should be done by employees.
- Using an I/C agreement or even hiring a person who has a business name/entity won’t protect you if they don’t pass the economic realities test.
- Before hiring an I/C, give careful consideration about the type of work and scope of the project to ensure an I/C is the appropriate choice.
- Be sure your I/C is set up with appropriate insurance(s) to protect you from wage and hours claims related to any workers the I/C may be using.
- Avoid contrary actions… don’t give an I/C a company email address, access to your server, or invite them to employee events.
- Periodically review your I/Cs to ensure they still qualify as an I/C.
- Keep records on how you determined someone was qualified as an I/C so you can prove you did your due diligence.
The DOL and DLSE are busy trying to reduce the number of people who are misclassified as independent contractors. So… shouldn’t you get busy making sure your I/Cs are properly classified?
The Challenge: Are you using Independent Contractors? Check the ABC Test, email me and I will send you her other article (firstname.lastname@example.org).
C.J. Westrick, SPHR, has been in human resources management for over 25 years and has worked in companies with 25 to 1,750 employees nationwide. C.J. received her SPHR (Senior Professional in Human Resources) national certification in 2002 and has a Bachelor’s degree in Business Management. She started HR Jungle in 2006 and targets companies who want senior-level HR expertise on a part-time basis. HR Jungle provides business owners and management teams workable solutions and hands-on assistance with employees and legal compliance through outsourced HR services.
Take care, it’s a jungle out there!
Disclaimer: What I have written here is my opinion based on my training, education, and years of human resources management and consulting experience. I have attempted to provide accurate information but keep in mind the information is written in a somewhat generic manner and some content may have been written by someone unassociated with HR Jungle. I am not an employment attorney and do not pretend to be. Nothing written here should be used as a substitute for obtaining legal advice from an attorney specializing in employment law.