(sorry this is another long posting)
In past years and meetings we’ve talked about independent contractors but normally it’s in regard to truckers and workers compensation. A recent Department of Labor Wage and Hour inspection of a gin in another region has brought this issue up yet again. This has primarily to do with your module haulers, bale haulers and other truckers you may have independent contractor relationships with.
Gins have always had a push-pull relationship with how contract haulers are classified. Many of these issues have revolved around workers comp. The issue of control over how, when, where etc the job gets done traditionally determines the relationship for these cases. In just the past few years, though, we’ve seen a number of multi-letter agencies such as OSHA, DOL, IRS, as well as workers comp putting a lot brighter light on this relationship.
OSHA has been looking at it as a way to cite employers as well as contractors under the joint employer relationship. There is a whole book on this topic but suffice it to says that the issue has a special emphasis program on it trying to tie would-be contractors to the employer as an employee if at all possible.
The IRS has been looking at it for a number of years and is an issue in every audit I’ve heard about in recent years.
We have been discussing the Workers Comp issue ever since I’ve been around the gin business in that contract module haulers are often re-classified as employees and ginners have to pay workers comp on the fees they’ve paid haulers. Until recently this has been the extent of it.
The most recent issue dealing with employee misclassification came during one of the more routine, and all too often, Wage and Hour inspections at a gin in the Mid-South. The inspectors are claiming (there hasn’t been a formal citation or back pay request made yet) that an independent module hauler (one man operation) is mis-classified and should be an employee not a contractor. This has the potential to cost this ginner quite a bit of back pay in the form of unpaid overtime.
The particulars of this case aren’t really the issue of this post either. During the ordeal, a document came to light that has some of us a bit disturbed. Earlier this year, the Administrator for Wage and Hour, David Weil, put out an interpretation letter that affirms that the agency is going to take the absolute broadest stance on the status of employee misclassification.
In the past, we’ve normally looked at the issue of control. If the employer had some little bit of control over how, when, where etc the person in question did their job, they are, in all likelihood, an employee. We’ve recommended the relationship be a bit more formal for these kinds of relationship by recommending you have your attorney draft a contract that lays out the responsibilities in a more formal manner.
With the surfacing of the Administrators Interpretation, the Wage and Hour division is taking a more broad look at this whenever they do routine wage inspections. As mentioned the interpretation letter makes the agency’s definition of employee as broad as possible under the law. The interpretation introduces a concept that may be a bit foreign to many of us… the concept of economic dependence. In reading the administrator’s interpretation, if the person in question is economically dependent on the employer, he is an employee. The letter discusses a number of tests (economic realities tests) that are meant to determine the status. Questions like whether or not the person can be fired without penalty to the employer or whether the person is able to work for other people at the same time. Whether or not the person has an opportunity for profit OR loss from the arrangement can have an impact just as is whether or not they need to use management control over their own operation to get the job done. And the idea of control really still overshadows all the others.
The point of this article is that the relationship you have with the people you ‘contract’ with to do work for you may not be as cut and dried or as clear as you may think it is. Our advice at this point is the same. When you have a relationship with someone that could be misclassified or could go either way, it is extremely important that you consult your labor attorney and/or tax professional to review contracts and affidavits as while the definitions in the strictest sense haven’t changed, they are now being applied in as broad a sense as possible by more agencies than ever and the outcome is not good for the employer.
This article will be followed up as we get better guidance for you. This issue isn’t going away.