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.

Enter your email address to follow this blog and receive notifications of new posts by email.

 
2018_Web100Badge