Tag: independent contractor

Employment Law Checkup

Quick Employment Law Checkup

If you have employees, you’re subject to an array of laws governing the workplace. Going from zero to even just one employee is a huge step. After that, the more employees you have, the more laws apply. And more employees and laws bring along increased risks of noncompliance. To tackle these issues, companies would ideally hire robust human resources departments and employment lawyers. But, that’s not practical for every business in every situation. So, in case you need somewhere to start, you can use this to conduct your own basic employment law checkup.

1. Are you paying workers enough?

I mean legally. Presumably, you’re paying them enough to work for you. And whether you pay enough to retain employees is another subject altogether. But I’m talking about minimum wage and overtime here.

With just one employee in the U.S., virtually all employers become subject to minimum wage and overtime laws. What laws apply to you and your employees? Are employees exempt from overtime? The exemptions are trickier than many understand, so double check this.

2. Are you paying payroll taxes?

For most employers, this is a no-brainer. Taxes are a way of life. But some employers try to avoid these obligations by either paying employees “under the table” or treating them as independent contractors. The first practice is simply illegal. The latter is more complicated.

Genuine independent contractors are responsible for their own taxes (and don’t have to receive minimum wage or overtime). But you can’t just avoid dealing with legal requirements by calling someone an independent contractor. The exact requirements vary, but generally, if a person is working only or primarily for you, they are probably your employee. Especially if they are performing tasks in line with your primary business. For example, a graphic designer “hired” for a one-off project creating a new company logo may be an independent contractor. But a graphic design company hiring the same person to create designs periodically for its customers looks more like an employment relationship.

3. Do you have an anti-harassment policy?

Various state and federal laws prohibit employment discrimination for all but the smallest employers. Even if you’re not subject to these laws, you can’t afford to tolerate workplace harassment. As a starting point, you should have a written anti-harassment policy that advises employees of prohibited behavior and provides a mechanism to report violations. Again, this is a bare minimum. So, after you institute or update your policy, consider providing training to employees. And, of course, take all complaints seriously and investigate promptly.

4. What do your personnel files look like?

If legal issues arise, the employee’s personnel file will come under scrutiny, so don’t be careless. Whether physical or electronic, you should have separate files for each employee. These should contain the “new hire” paperwork such as offer letters, I-9s, and tax withholding forms. They also include employee benefit documents, such as for insurance and retirement plans, if applicable. They would also include any formal disciplinary records. And if you receive medical information about an employee, that must go in a separate file.

5. How do you handle employee medical issues?

If you do have medical information, you’ve probably had to deal with employee medical issues. These can touch on a surprising number of employment laws. I regularly advise clients about single employee medical situations that potentially implicate 6-7 laws. For example, you may have to make reasonable accommodations to an employee with a disability. This might include time off, even if you don’t have a sick leave policy.

6. Will your employees go union?

Most employees have the right to join unions. As an employer, it’s not your choice. But that doesn’t mean your fate is sealed. Getting the above issues right, treating employees well, and listening to them will often keep unions out. But if your employees do unionize, then you’ll be playing by a new set of rules. You’ll have to negotiate with the union over many issues. You will enter the world of potential grievances and arbitrations. And employees will likely receive “just cause” job protection. Make sure you understand how this world works before you find yourself in it. (There are geographic and industry-based factors affecting the likelihood that your workforce will unionize, but it’s at least a possibility in nearly every company.)

Beyond this Employment Law Checkup

I’m only providing this quick employment law checkup as a starting point. I want employers to get these issues right. But that’s not always an easy task. Plus, there are many more employment laws beyond the subjects addressed here. The laws are complex. Often there are extensive regulations. Minor nuances can entirely change an employer’s responsibilities.

 

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Employee Classification Mistakes

5 Employee Classification Mistakes

Let’s face it, most organizations are in business to do something other than worry about how they classify their employees. They have products or services to offer, and they want to do so efficiently and effectively. Unfortunately, because it’s not their area of expertise, many businesses make employee classification mistakes despite their good intentions. But, here’s an opportunity to correct those mistakes!

These are 5 of the most common employee classification mistakes I see from good companies who really are trying to do the right thing.

(If this looks like too many words on a page, you might prefer my webinar: Overtime Exemptions for New York Employers: What You Don’t Know CAN Hurt You!)

1. Contract Designation vs. Legal Reality

Perhaps the first lesson in employment law should be “just because it’s on paper, doesn’t make it so!” One area this applies is the threshold question of whether a worker is an employee or an independent contractor. Often, businesses and workers prefer the “independent contractor” designation for various reasons. So, they execute a contract that says that the person is not an employee of the company. Unfortunately, it’s not that easy.

It turns out that a lot of government entities care about the “independent contractor” vs. “employee” classification. This includes the IRS and state taxing authorities, state unemployment and workers’ compensation authorities, departments of labor and other agencies enforcing labor and employment laws, and the courts. And, usually, the government’s “preference” is to find a worker to be an “employee.”

Frankly, having a piece of paper that says a person is not an employee tends to be one of the least relevant factors in this determination. It’s nice to have, and you really do want to have a written contract if you’re trying to prove an independent contractor relationship. But the government looks at many aspects of the relationship to evaluate whether the worker qualifies as an employee under whatever law is in question (e.g., minimum wage, employment tax withholding, etc.).

Some factors that matter more than words on the page include:

  • Who provides the tools and equipment the worker uses?
  • Does the worker operate a business and have other customers?
  • Does the worker control the timing and means of getting the work done?
  • Is the worker directly involved in the company’s core business or just enabling the company to get its business done?

Cautious companies will consider these and other questions carefully before entering into an agreement with a potential independent contractor. The agreement should confirm the factors that will support the classification. But, again, the contract itself won’t be the deciding factor.

2. “Salary” vs. “Hourly”

Sure, it’s fine to classify some employees as “salary” and others as “hourly.” But these categories only go so far. One of the most common employee classification mistakes is equating salaried with exempt and hourly with non-exempt for overtime purposes.

Paying an employee a salary does not automatically exempt them from receiving overtime under the FLSA and state laws. And, it goes the other way too. Some hourly employees can still be exempt from overtime (though this is relatively rare).

The most prevalent overtime exemptions are the so-called “white collar” exemptions. These include administrative, executive, professional, computer employee, and outside sales exemptions. Some exemptions require that employees be paid on a salary basis. But that is never the only requirement! The nature of the employee’s work must also satisfy certain tests. Moreover, the FLSA has no salary requirement for the outside sales exemption and certain professional categories (doctor, lawyer, and teacher). And qualifying computer employees can be exempt even if they receive an hourly wage.

To better understand the overtime exemptions, check out my free webinar: Overtime Exemptions for New York Employers: What You Don’t Know CAN Hurt You!

3. “Full-time” vs. “Part-time”

Again, this is a useful designation. But it’s not a one-size fits all classification. Even within the same workplace, two “full-time” employees may work different schedules and total numbers of hours in a week. The same may be true for two “part-time” employees.

Like with “salary” vs. “hourly,” “full-time” vs. “part-time” doesn’t necessarily signify whether an employee is eligible to receive overtime pay.

When labor and employment laws use these or similar terms, they mean different things depending on the law. The Affordable Care Act defines full-time to mean the employee works an average of 30 hours per week. By contrast, New York’s new Paid Family Leave law draws a line at 20 hours per week. So does the federal WARN Act, which requires employers to give written notice before certain mass layoffs and plant closings.

So, it’s important for employers to understand the context in which a particular employee is part-time or full-time. Day-to-day, the distinction probably depends not on external laws, but how the employer itself defines the categories, such as for employee benefits eligibility like vacation and holiday pay. But understand that failing to draw the correct line for specific legal analyses is another of the most problematic employee classification mistakes.

4. Job Description vs. Actual Duties

For employment law purposes, there are many reasons why it may matter what a particular employee’s job entails. Most of the time that inquiry should not end with reviewing a written job description. Like the written designation of a worker as an independent contractor instead of an employee, words on a page describing what the employee’s position entails is seldom determinative. Rather, you must know what this specific person actually does for the organization.

For starters, this is critical in classifying employees as exempt vs. non-exempt. It also comes into play in determining essential functions of an employee’s position for disability accommodation purposes.

Yes, it is nice when the written job description accurately reflects what the employee actually does. And this is a good reason to regularly review and update your job descriptions. But organizations often prepare a job description when they create a position and then use it for years without reevaluating it. The employees in the role probably have changed, as have the exact tasks of the job.

5. Union vs. Non-Union

The last of these employee classification mistakes is only relevant if a union represents (or perhaps is seeking to represent) some of your employees. That’s a diminishing percentage of U.S. workplaces, but still a significant number of them.

Obviously, it is important to know which employees are in the union bargaining unit and which are not. In Right-to-Work states that won’t necessarily be same as which employees are actually members of the union. But, regardless, if they are in the bargaining unit, then the employer must deal with the union directly rather than the employee regarding certain matters.

But, like some of other employee classification mistakes above, “union” vs. “non-union” does not legally equate to whether an employee is exempt or non-exempt from overtime. Or whether they are protected by federal or state leave laws or other benefits matters.

Typically, having unionized employees just adds another layer to an already complex web of labor and employment law compliance issues. It is often critical to break out the pieces of the web to analyze and address them properly.

Avoiding Employee Classification Mistakes

The best way for most organizations to avoid costly employee classification mistakes is to consult with an experienced labor and employment lawyer. But, admittedly, it’s hard to know when you are wandering into a trap for the unwary such that legal advice is necessary.

I try to help New York employers know when to ask for guidance through this blog and my email newsletter. I also present free webinars, such as Auditing Your New York Worker Classifications.