Employee Benefits for Contractors? Don’t Overreact to New DOL Rule (or to Knife-Wielding Squirrels)

Terror in the backyard! Screen grab from @asdiamond on twitter

A knife-wielding squirrel was seen patrolling a backyard fence last week, according to this article in the Toronto Sun. Here’s the video evidence. Fortunately, no one took action and no one overreacted. The squirrel reportedly gnawed on the knife a bit, lost interest, and dropped it to pursue other squirrel-related passions. Everything turned out ok.

Not overreacting is important. Get all the facts, and look at the big picture before deciding whether to take action.

Same with the new DOL regulation on determining in dependent contractor status, first reported here.

This week I’ve seen two articles saying that, under the new rules, providing employee benefits to independent contractors does not tilt the scales in favor of employee status under the new rules. No, no, no! If you’ve seen that commentary, please disregard it. It is an overreaction, and if you provide traditional employee benefits to an independent contractor, that’s a sure sign of misclassification.

Now, let’s break that down a bit. Yes, it’s true that in the commentary to the new rule, the DOL indicated that providing some types of benefits to an independent contractor does not necessarily mean the contractor is misclassified. (As you will all undoubtedly recall from reading all 261 pages of the DOL commentary, that’s on pages 58-59.) But — and there’s a big but (one t) — it does not mean that you can freely start giving employee benefits to contractors.

First, let’s not overstate what the DOL is trying to say. The DOL is not saying you can provide traditional employee-type benefits to contractors, the same way you do for your employees. The DOL is saying that it’s not automatic misclassification under the FLSA if you provide a contractor with extra money for the contractor to help fund his/her own benefit plan, such as through the healthcare.gov exchanges.

Second, let’s not forget the very narrow scope of the DOL’s new rule. The new rule applies only to the FLSA. That is, it applies only for determining whether someone is owed overtime and a minimum wage. And here’s the important point: The FLSA and the new rule and the new test have nothing to do with determining independent contractor vs. employee status under federal tax and benefits law.

The test for determining whether someone is an employee under federal tax and employee benefit law is a Right to Control Test, not the FLSA Economic Realities Test addressed in the new rule. If you add your contractor to your regular employee benefit plan, you have almost certainly created an employment relationship under those laws. Or, perhaps worse, you could disqualify your plan by providing plan benefits to a non-employee.

Under either scenario, providing regular employee benefits to an independent contractor is a very bad idea under current federal law. In short, don’t do it.

Hopefully, federal law will eventually change to allow independent contractors better access to employee-type benefits without converting them to employees for all purposes. But we are a long way from there.

In the meantime, let’s not overreact. As for the new rule, Biden might invalidate it anyway before it is scheduled to take effect March 8.

As for knife-wielding squirrels, don’t confront them directly. You’ll just make them angry and more determined and–as you can see in this video–squirrels can be pretty darn creative when they are determined to get something.

© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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New Seattle Sick Pay Law for Gig Workers: Squishy or Full of Venom?

jellyfish

Horrifying images not intended to scare children. Thanks, PBS Learning.

I learned this week that a species of jellyfish found off the coast of China, Japan, and Korea can weigh up to 440 pounds. There’s a video here, and the size of this thing is terrifying.

In Finding Nemo, I learned that you can bounce on the fleshy heads of jellyfish without getting stung, and this creature has an abundantly fleshy head. The tentacles, though, are a different story. There are a lot of them. So the lesson here is that when approaching a Nomura’s Jellyfish, as they are called, be thoughtful in how you approach.

Which brings me to the City of Seattle. Seattle has been relentless in looking for ways to provide gig workers benefits of some kind, without getting caught up in the Independent Contractor vs. Employee question. The city has been aiming to grant gig workers certain rights, whether they are employees or not.

Seattle’s strategy is to aim for the jellyfish’s head, not wanting to get caught up in the tentacles of a dispute over whether the gig workers are employees or not.

In its latest head shot, Seattle has enacted an ordinance requiring transportation network companies and food delivery network companies (app based) to provide paid sick time to gig workers who perform services in Seattle. The requirement applies regardless of whether the workers are contractors or employees. The law was signed on June 12, 2020.

This move may signal a new strategy for states and localities that wish to provide benefits to gig workers. They can require benefits for gig workers, regardless of whether the workers are deemed employees.

This approach, if it works, may introduce other problems for app-based companies.

If companies start providing benefits such as paid sick leave to workers they consider to be independent contractors, that fact could be used against them as evidence the workers are being treated as employees.

In other words, this ordinance sets a trap. App-based companies will still be able to argue that they are providing sick leave only because they are required by local law, but surely the plaintiffs’ bar will argue that providing sick leave is evidence of employment status.

It’s a dangerous game, trying to bounce of the heads of the squishies while avoiding the sting. We’ll see how it plays out. In the meantime, obey beach hazard signs and try to avoid getting stung.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Why Don’t Companies Offer Healthcare Benefits to Independent Contractors?

 

I found this on buzzfeed, while doing academic research for this blog post.

In the business world, it’s not quite as funny when good intentions are misunderstood. Which is why companies generally can’t offer healthcare benefits to independent contractors. Even if they would like to, they can’t.

Good intentions would be misunderstood, and the effect of offering healthcare coverage to independent contractors would likely be that they are turned into employees.

Why?

The law limits who can sell health insurance coverage. You need a license. It’s the same reason I can’t work as an Aquatic Antifouling Paint Operator in New York State. If you want to commercially apply antifouling paints, which are pesticides, on vessel hulls, boat bottoms, or other other marine surfaces to inhibit the growth of aquatic organisms, you need an Aquatic Antifouling Paint Operator license. (Apply here.)

Companies that aren’t licensed to sell healthcare insurance can’t go around selling healthcare insurance. But there’s a narrow exception, which allows companies to offer healthcare insurance to its employees. The exception doesn’t extend to vendors, suppliers, or independent contractors. Only employees.

Some of the large rideshare app companies have advocated for legal reform that would allow them to offer more benefits to independent contractor drivers. But there’s not much they can do right now. Companies without a license to sell healthcare insurance can only offer healthcare insurance to its employees, not to independent contractors.

Some companies have begun to get creative in an effort to offer more benefits to independent contractor drivers. According to benefitsnews.com, some app companies are beginning to offer limited benefits, such as access to accident insurance, free online college courses, and professional certifications.

Some states, such as New York, have considered legislation that would expand the availability of benefits to independent contractors, but the current state of the law severely restricts what companies can do.

The legal problem for companies who want to offer more benefits to contractors is not just that they can’t sell healthcare insurance to non-employees. It’s also that the more benefits they offer to contractors, the more those contractors may start to resemble employees. Since U.S. law currently sees the Employee vs. Independent Contractor issue as binary — you can only be one or the other — companies who offer increased employee-like benefits to contractors run the risk that the contractors will be deemed their employees, which creates a whole big mess of other legal problems.

A company might wish to provide healthcare coverage to independent contractors, but the company’s good intentions would be misunderstood. Which is also why if you want a haircut and dye, you should just type it into your phone’s calendar instead of just telling Siri.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Will New Bill Finally Allow Independent Contractors to Receive “Employee” Benefits?

Employee benefits for independent contractors

In 1983, Journey released the album Frontiers which, as you all know, is not as good as Escape but way better than Raised on Radio. The third song on Frontiers is After the Fall (youtube 80s refresher here), not to be confused with the later-formed Australian rock band, After the Fall (which is not to be confused with the much earlier British post-punk band The Fall, which came before After the Fall, but I digress). The Australian band, After the Fall, featured a drummer named Mark Warner, not to be confused with the Democratic Senator from Virginia, who, incidentally, is not related to John Warner, who was also once a Senator from Virginia.

Mark Warner the Senator recently introduced a bill that relates to the subject of this blog, and so for that, I am grateful, especially since it allowed me to mention the album Escape, which I really liked very much.

Sen. Warner has been trying for some time to gain traction on a bill that would promote portable employee benefits for gig workers. I am solidly behind this idea, as it would provide much more flexibility for independent contractors to carve out their own career paths without forfeiting employee benefits. I never understood why we tie health insurance to employment in this country, but that’s for another day.

Warner’s bill has never gone anywhere but, to his credit, he is trying again.

Last week, he introduced an amendment to a massive appropriations package. The amendment would set up a system to award grants for state and local governments and non-profits. The grants would support the creation of programs to allow portable benefits for gig workers, including health insurance, workers compensation, disability coverage, and retirement savings plans.

I hope the program succeeds. The current legal framework, which recognizes independent contractors and employees but no third option, is not consistent with how the modern gig economy works. If benefits can be de-coupled from employment, as they should be, we may eventually see a 21st century system that allows gig workers to receive insurance, workers comp, and other protections, without having to be reclassified as employees.

Thank you, Sen. Warner. I won’t stop believin.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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