OMG! The DOL has promised us the new proposed guidelines for classifying Exempt workers No-Later-Than June 18th of this year. That’s pretty exciting stuff for employment law geeks like me! But, WAIT! There’s more………….No, the DOL is not throwing in a set of Ginsu Knives with the guidelines. Instead, we will be getting a clarification regarding how employers should classify their workers as independent contractors! The HOT question regarding who gets a 1099 and who must be a W-2 tax payer burns for employers across the USA. This new guidance may not be significantly different than what the fact sheets already say. However, Wage and Hour Division Administrator Dr. David Weil said in a speech given just last week that the new guidance will cover “a very clear set of criteria,” because a case tried in court “requires a careful consideration of the economic realities and multiple aspects of the relationship.”
The Supreme Court has considered several factors in past cases. The court holds that “there is no definition that solves all problems relating to the employer-employee relationship under the Fair Labor Standards Act (FLSA). The Court has also said that determination of the relation cannot be based on isolated factors or upon a single characteristic, but depends upon the circumstances of the whole activity.” So, what’s an employer to do?
- Create a process for determining who gets a W-2 and who qualifies as an independent worker under the DOL guidance. This means you will understand both the Federal guidelines and the classification guidelines in the state where the work is performed. Then, the smart decision will be to default to the more stringent set of guidelines to be certain your classification holds up at all levels.
- Document the sources you consulted in order to make this serious determination. Remember my Rule of 3s!
- Write the process in the form of a policy and procedure. Be ready to show proof of your method and how you came to your conclusions.
- Train all workers in the chain of this decision making process. This will include HR, Payroll, Accounts Payable, and Managers who may be scouting for temporary labor.
- Encourage great open communication between all in the chain. Be ready to set the example of Yes-and!
- Revisit the process annually (or this summer) and revise your procedures when gaps are identified.
Once your company has put in this initial work to create the process, your maintenance will be much easier. Go get ’em!
Until Next Time, Be Audit-Secure