A Congressional bill introduced last month that would provide clarity and guidance for businesses in properly classifying independent contractors (ICs) is being supported by members of the business community who rely on ICs to meet customers’ needs. In a recent survey of members of the Customized Logistics & Delivery Association (CLDA), over 89% said their ability to utilize ICs was important to their business success by allowing them to deal effectively with fluctuating customer demands.
Companies are subjected to a patchwork of different tests for determining whether their workers are employees or ICs. The IRS considers 20 factors when determining employee status. Different factors are applied when tested against the Fair Labor Standards Act. Moreover, states have their own versions of these tests, which can differ (even within the same state) depending on whether they are being used to determine worker classification for purposes of workers’ compensation, wage statutes, unemployment insurance, or other laws. Typical factors include, among other things, the degree of control exercised by the company over the worker, the worker’s opportunity for profit or loss and investment in his or her business, and the extent to which the work performed by the worker is integral to the employer’s business (National Law Review).
On June 5, David Weil, Administrator of the Department of Labor’s Wage and Hour Division, stated the Department of Labor is preparing to release guidelines addressing how to assess whether a worker is properly classified as an IC for purposes of FLSA. These “interpretive rules” are expected to be released early this summer; however, they do not carry the force and effect of law.
HR 2483 TO SIMPLIFY IRS WORKER CLASSIFICATION TEST, CODIFY SAFE-HARBOR PROVISIONS
Introduced by Congressman Erik Paulsen (R-Minnesota), H.R. 2483 provides a new section to the Internal Revenue Code (Section 3511) that will assist businesses in properly classifying individuals as independent contractors. If passed, the legislation will codify new Safe-Harbor provisions in the Tax Code, putting these provisions on firmer ground, and establish a two-part test to determine whether a service provider is an IC or an employee of the service recipient.
This clarity is important for companies as well as for workers who prefer independent contract work and self-employment.
MISCLASSIFICATION CASES SURFACE IN COURTS, ADMINISTRATIVE AGENCIES
May 2015 was one of the busiest months for IC misclassification cases against companies, with no less than a dozen cases surfacing in the courts and administrative agencies. These include janitorial and commercial cleaning service companies in Colorado and Massachusetts, trucking and delivery service providers in California, Florida and New Jersey, and hospitality workers in Kentucky. In the meantime, Virginia, North Carolina, Idaho, California and New York have launched new initiatives on misclassification of employees as independent contractors.
ADDRESSING THE FREELANCE MOVEMENT
A report released on May 20, 2015 by the U.S. Government Accountability Office (GAO) entitled “Contingent Workforce: Size, Characteristics, Earnings and Benefits” contained surprising statistical conclusions on ICs. Freelancers, “moonlighters” and ICs are a growing part the U.S. workforce, comprising as much as 10 percent of working Americans, and the share of earners with alternative work arrangements, including part-time employment, self-employed and temporary or “contingent employees,” increased to 40.4% of the workforce in 2010.
About 86% of independent contractors and self-employed workers say they are content with their employment type. Likewise, significantly more ICs were likely to be “very satisfied” with their work situation than those with standard full-time jobs, 57% to 43%. (Read more here.) With the trend toward more workers finding satisfaction in non-traditional work situations, it’s no surprise more businesses including those in the on-demand economy are making use of ICs and that workers are attracted to this form of work.
CLDA, COALITION OF INDUSTRIES SUPPORT HR 2483
QCS Logistics and a large majority of CLDA members see ICs as an essential part of their operating success by allowing the flexibility needed to manage fluctuations in business. HR 2483 clarifies the definition of an independent contractor, giving much-needed guidance to large and small businesses that depend on this model to meet customer demands.
Independent contractors play an important role in the U.S. economy and are a key part in the nation’s supply chain. With the right tools and additional clarity, the relationships between ICs and private sector industries can be structured, documented and implemented in a way that remains in compliance with federal and state laws.
CLDA and a coalition of other industries urge those in businesses that depend upon independent contractors to contact their representative in Washington in support of HR 2483 (https://www.congress.gov/bill/114th-congress/house-bill/2483).