At the end of Pixar’s Up, Carl and Russell sit on a curb pointing out cars: “Red one!” “Blue one!” Then Dug (the dog) calls out “Gray one!” which I find endlessly funny every time I watch it.
Whatever color the car, they sat there content, eating ice cream.
Black car companies in New York are celebrating too (hopefully with ice cream), after a recent decision preserving their drivers’ status as independent contractors. In Salem v. Corporate Transportation Group, the Second Circuit Court of Appeals ruled that drivers were not entitled to overtime pay, since they were not employees, but rather independent contractor franchisees.
We’ve written often in this blog about the different tests for determining Who Is My Employee? This case was brought under the Fair Labor Standards Act (FLSA) and comparable New York law, so the Court applied an Economic Realities Test. This test measures whether workers are economically dependent on one company to earn a living or are in business for themselves.
Relying on the Economic Realities factors, the Court ruled the drivers were economically independent and were in business for themselves. Here are the keys to victory:
- The drivers purchased franchises, choosing from a variety of options (rent, own);
- The drivers used their own cars and paid all their own expenses;
- The drivers could drive for competitors or for personal clients;
- The drivers were entrepreneurs, controlling many significant aspects of their personal driving business;
- The drivers were free to accept or reject jobs;
- The drivers chose when, where, and how often to work; and
- The franchisor company could not freely terminate the drivers’ franchise agreements.
While independent contractor relationships remain under fire, this decision shows that there’s still hope. Companies can win these cases when they carefully construct the facts, relinquish control, and allow contractors to run their own enterprises.
Although these drivers had considerable discretion over how to run their individual businesses, none (unfortunately) had the creativity to ditch the car and transport customers in a helium-balloon powered house. Now back to the film.
It’s summer intern hiring season. Can your interns be unpaid? If you pay them something, can you pay a small stipend that amounts to less than minimum wage?
Wage and hour laws dictate when a summer intern must be paid like a regular employee, with a required minimum wage and eligibility for overtime. Seasonal amusement and recreational establishments (such as summer camps or some amusement parks) may qualify for a special exemption, but this post is focused on more conventional year-round businesses.
Here are six tips for maintaining unpaid internship status: Continue reading
Sort of. The Fair Labor Standards Act (FLSA) covers only employees, not independent contractors. The FLSA’s requirements on minimum wage and overtime, therefore, do not apply to independent contractors.
But wait, dear reader, don’t click away quite yet! There’s more! The real question is whether your independent contractor is really an independent contractor.
The question of Independent Contractor vs. Employee is determined under the FLSA by applying an Economic Realities Test to the facts of the relationship, not by deferring to how the parties have characterized they relationship.
The Economic Realities Test evaluates whether the worker is economically reliant on the company for which services are being provided, as opposed to in business for himself/herself.
I have written about the Economic Realities Test here, walking the reader through the various factors that courts and the DOL use to determine Who Is My Employee? under the FLSA.
The bottom line: A true independent contractor is not covered by the FLSA, but an Economic Realities analysis must be applied to determine whether a worker is truly an independent contractor.
Photo of Singer Dave Mason (We Just Disagree), by Alan Hurtock
Let’s start with this: Everyone is happy being an independent contractor until they’re not.
What do I mean by that? Right now, the relationship works. The contractor performs, and you pay for the work.
But what happens when things go south? As soon as you decide you no longer need those services, the contractor might stop being your BFF.
A disgruntled former contractor has some options, all of which involve some variation of this story: “Once upon a time, I was misclassified and should have been an employee.” None of the former contractor’s possible next steps are good for you: Continue reading
The IRS offers a settlement option for companies that suspect they have been misclassifying their independent contractors and wish to reclassify them as employees.
The Voluntary Classification Settlement Program (VCSP) requires companies to meet certain eligibility criteria to participate but, in exchange, the IRS rewards participating companies with a steep discount off potential back taxes and penalties.
To participate in VCSP, a company:
- Must declare its intent to reclassify one or more independent contractors as employees;
- Must have consistently treated this class of workers as non-employees;
- Must have filed Forms 1099 for payments made to these employees; and
- Cannot be under a misclassification audit by the IRS, DOL, or a state government.
Benefits for participating companies include:
- Pay only 10 percent of the employment tax liability that would have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509(a) of the Internal Revenue Code. See VCSP FAQ 15, for information on how payment under the VCSP is calculated. Also see Instructions to Form 8952;
- No liability for any interest and penalties on the amount; and
- No IRS employment tax audit with respect to the worker classification of the workers being reclassified under the VCSP for prior years.
The settlement process requires companies to sign a closing agreement with the IRS.
Is this a good deal? It can be, but it depends on the overall circumstances. Some factors to consider before applying include: Continue reading
As we know, there are a variety of tests used to determine Independent Contractor vs. Employee, and the proper test varies depending of the law being applied.
Most of these tests are balancing tests. A variety of factors are considered, and no single factor is determinative.
ABC tests, however, are different. ABC tests start with a presumption that a contractor is an employee, then requires a company to prove each of three factors to protect a contractor’s status as a contractor.
ABC tests tend to apply only to state unemployment coverage laws and, less commonly, to
state workers’ compensation laws. Continue reading
Retaining control over how independent contractors do their work can sink an otherwise legitimate independent contractor relationship.
Fortunately, steps can almost always be taken to give up aspects of control that do not hurt the business case for using a contractor instead of an employee. Companies need to be thoughtful and proactive, though, in evaluating and modifying these relationships — before they are challenged in a misclassification claim.
Here are four aspects of control you may be able to relinquish in your relationships with independent contractors: Continue reading