There are certain expressions in the employment law world that don’t make much sense.   Call them: Employment Law Oxymorons.

At least for me, hearing an employer ask what they should do about their “1099 Employees” is one of them.

Let’s back up one step:

  • Employees are paid wages and as such, they get issued a W-2 tax form at the end of the year.
  • Independent contractors are paid fees and as such, they should be issued a 1099 tax form.

See the difference?

So when someone says a “1099 employee”, under the law, there really is no such thing.  The problem is that some employers still do not understand the differences or, worse, improperly label workers as “independent contractors” instead of employees.

The modern day example of this was a series of tweets put out last week by a website advertising for a “full-time freelance position.”

See the contradictions?  Full-time and freelance don’t really mesh together.  If you’re truly freelance, you should be able to set your time, place and manner of work.

How do you tell the difference? I previously covered the different tests that should be used but suffice to say that using the phrases “full-time freelancer” and “1099 employees” may indicate that you may not be following either.

Employers who want to (or need to) use independent contractors often scratch their heads at a disconnect – how do you determine who is an independent contractor?  I recall at one speaking engagement years ago, an employer who came up to me and asked: “So are you saying that there are TWO tests to determining if someone is an independent contractor?”

Yes, that’s exactly what I was saying.

The Connecticut Department of Labor and the Connecticut Department of Revenue Services (the state equivalent to the IRS) have each developed tests for determining if someone is an employee vs. an independent contractor.

And they are not the same.

I’ve looked at this before, but my colleagues at Shipman & Goodwin — who now host a terrific new little blog on tax law (www.cttaxalert.com) — have posted about it too — but this time from the perspective of tax lawyers. 

Worth your time.

Time to find your happy place.
Time to find your happy place.

Whatever happened to summer vacation? You remember, that downtime, when nothing much happened?

First, there were new proposed OT rules. Then, word came out EARLY (I got an alert at 6a!) today that the U.S. Department of Labor issued new “guidance” that will try to limit the misclassification of employees as indpendent contractors.

The goal is nothing less than ensuring that most of these workers qualify as employees under the federal Fair Labor Standards Act.

Here’s the key quote:

In sum, most workers are employees under the FLSA’s broad definitions… The very broad definition of employment under the FLSA as ‘to suffer or permit to work’ and the act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.

It states elsewhere:

This Administrator’s Interpretation first discusses the pertinent FLSA definitions and the breadth of employment relationships covered by the FLSA. When determining whether a worker is an employee or independent contractor, the application of the economic realities factors should be guided by the FLSA’s statutory directive that the scope of the employment relationship is very broad. This Administrator’s Interpretation then addresses each of the factors, providing citations to case law and examples. All of the factors must be considered in each case, and no one factor (particularly the control factor) is determinative of whether a worker is an employee. Moreover, the factors themselves should not be applied in a mechanical fashion, but with an understanding that the factors are indicators of the broader concept of economic dependence. Ultimately, the goal is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor). The factors are a guide to make this ultimate determination of economic dependence or independence.

I’ve talked about the economic realities test before.  This not a new issue.

In fact, the USDOL had a fact sheet in 2014 stating almost the exact same thing.

But the USDOL’s new “interpretation” is certainly going to force employers to take a new look at their relationships to determine whether independent contractors should be better classified as employees.  And it’s going to raise some questions on enforcement as well.

So, to remind you, what are those factors under the “economic realities” test?

  1. Is the work an integral part of the employer’s business?
  2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  3. How does the worker’s relative investment compare to the employer’s investment?
  4. Does the work performed require special skill and initiative?
  5. Is the relationship between the worker and the employer permanent or indefinite?
  6. What is the nature and degree of the employer’s control?

But, and here’s where we all need to take a deep breath, this type of analysis isn’t all that new or surprising.  Courts have been using it for a while.  And it shouldn’t cause you to drop everything you’re doing today to look at this.

In fact, if you’re in Connecticut, I would actually suggest taking an even deeper breath because the issue is even more complicated than that.

There is a case now pending at the Connecticut Supreme Court — Standard Oil of Connecticut v. Administrator, Unemployment Compensation Act, that is examining whether certain contractors are “employees” under a different test — the ABC Test, and the proper application of that test under Connecticut’s own misclassification laws).

As explained by the CTDOL:

The ABC Test applies three factors (A, B, and C) for determining a worker’s employment status. To be considered an “independent contractor,” an individual must meet  all three of the following factors:
A. The individual must be free from direction and control (work independently) in  connection with the performance of the service, both under his or her contract of hire and in fact;
B. The individual’s service must be performed either outside the  usual course of business of the employer or outside all the employer’s places of business; and
C. The individual must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service performed

Yes, in addition to the USDOL’s “Economic Realities” test, the Connecticut Department of Labor uses a different test for unemployment compensation purposes named the “ABC” test.

And don’t even get me started on the IRS’s “20 factor” test.

Are you in your happy place yet?

Maybe it’s time for that vacation after all.

Or, if you’re an employer, just take this latest news in stride. If you have independent contractors, the guidance is really just another reminder that the use of these contractors continues to be heavily disfavored by government agencies.

But if you’ve been reading this blog (see this post, for example, from 2010), you’ve known that, right?

For several years, one of the most popular posts on my blog was the one where I listed the mileage reimbursement rate for businesses.  It’s been relatively stable, but this year brings about another small change.

In any event, the new rate became effective January 1, 2015. Remember, this is the optional standard mileage rates. These rates are typically used by businesses to help calculate mileage expenses for employees but it is not mandatory.

Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be 57.5 cents per mile for business miles driven (up from 56 cents in 2014.)

As a reminder, companies with personnel policies about their mileage reimbursement should consider updating their policies immediately to reflect this change. In the future, employers can draft a policy that states that their standard mileage rate will be consistent with the IRS’s rate without reference to a particular number.

Mileage Reimbursement

I’m often asked what some of my most popular posts are on the blog.  Surprisingly, one topic that always seems to generate interest is the mileage reimbursement rate.  I’m not quite sure why.

In any event, the new rate became effective January 1, 2012.  Remember, this is the optional standard mileage rates. These rates are typically used by businesses to help calculate mileage expenses for employees.

It was last adjusted in mid-2011 and the 2012 rate is unchanged from that.  Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be 55.5 cents per mile for business miles driven.

This rate can be particularly important in states like California.  California Labor Code section 2802(a) states that an employer must indemnify its employees for expenses they incur in performing their job duties. While this won’t include commuting miles, it likely covers employees for mileage driven for business purposes in personal vehicles.

As a reminder, companies with personnel policies about their mileage reimbursement should consider updating their policies immediately to reflect this change. In the future, employers can draft a policy that states that their standard mileage rate will be consistent with the IRS’s rate without reference to a particular number.

We had another great turnout last week  for my firm’s seminar on labor & employment law.  Many of the topics would be familiar to avid blog readers, but there were three interesting points that I haven’t talked much about that I thought were also notable.

1.  In September, the IRS announced a Voluntary Classification Settlement Program which allows employers who have misclassified employees as “independent contractors” to escape some tax consequences for re-classifying them as employees.  There are downsides to this program (including opening yourself up to a wage & hour lawsuit by the employee) but it might work for some employers in some circumstances.

Interestingly, Deputy Labor Commission Dennis Murphy indicated at the seminar that Connecticut is exploring a similar program which may (or may not) get announced in early 2012.

2.  The DOL has an active Rapid Reemployment Initiative that connects employers with unemployed workers.  In doing so, the state also is providing financial incentives to employers who hire unemployed workers.  Details can be found on the DOL’s website.

3. There are also changes to the NLRB’s election rules that got passed last week.  Labor Relations Today has all the details. Among the approved changes

  • giving hearing officers the discretion to deny requests by parties to submit post-hearing briefs
  • eliminating the 25 day period between the issuance of a decision and direction of election by a regional director and the holding of an election
  • giving the Board the discretion to refuse to review a regional director’s resolution of post-election disputes

If you signed up for the seminar and were unable to attend (or attended) and would like a copy of the materials, please send me a note at dschwartz@pullcom.com.

My thanks to all who attended and made the program a big success.  Stay tuned for details on our next program in Spring 2012.

With all the publicity about paid sick leave (effective January 1, 2012 — you’re ready, right?), it’s important not to forget that there are plenty of other employment laws that employers have to consider.

Photo Courtesy Library of Congress

Over the last few years, there’s been more agency enforcement centered around employee misclassification — that is treating “real” employees as independent contractors.  Why is this important to state and federal governments? In part, because governments lose out on tax revenue, when wages are properly reported.

Last month, the IRS and the U.S. Department of Labor signed a Memorandum of Understanding that will improve the DOL’s “efforts to end the business practice of misclassifying employees in order to avoid providing employment protections.”  You can read the memo here.  There are plenty of summaries of this memo already out there.

Of importance to employers in Connecticut though is a lesser-known announcement that Connecticut was one of seven states to have signed memorandums of understanding with the department’s Wage and Hour Division and, in some cases, its Employee Benefits Security Administration, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs and Office of the Solicitor.

According to a press release posted on the Connecticut Department of Labor’s website, “The memorandums of understanding will enable the U.S. Department of Labor to share information and coordinate law enforcement with the IRS and participating states in order to level the playing field for law-abiding employers and ensure that employees receive the protections to which they are entitled under federal and state law.”

What Are The Implications for Employers?

Well, outside of the obvious one — namely, that employers should continue to evaluate their usage of independent contractors — the other big implication of this announcement is that employers should now assume that any Labor Department audits could be referred to the tax authorities for further investigation and followup. 

Combined with Connecticut’s new Joint Enforcement Commission on Worker Misclassification, these types of arrangements should make it clear that misclassification issues are at the top of agency enforcement agendas. 

 

If it’s December, it means it’s time for the IRS to announce the 2011 optional standard mileage rates. These rates are typically used by businesses to help calculate mileage expenses for employees. And just when you’ve started to remember the optional rate issued by the IRS, the agency changes it.

And so it has for 2011. Effective January 1, 2011, the standard mileage rate for use of a car for business miles driven will be adjusted upward to 51 cents per mile.

According to the IRS:

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

As a reminder, companies with personnel policies about their mileage reimbursement should consider updating their policies immediately to reflect this change. In the future, employers can draft a policy that states that their standard mileage rate will be consistent with the IRS’s rate without reference to a particular number.

You might have missed it, but the IRS recently announced the 2010 optional standard mileage rates. These rates are typically used by businesses to help calculate mileage expenses for employees.  And just when you’ve started to remember the optional rate issued by the IRS, it changes it.

And so it has for 2010. Effective January 1, 2010, the standard mileage rate for use of a car for business miles driven will be adjusted downward to 50 cents per mile.

According to the IRS:

 

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile.

As a reminder, companies with personnel policies about their mileage reimbursement should consider updating their policies immediately to reflect this change. In the future, employers can draft a policy that states that their standard mileage rate will be consistent with the IRS’s rate without reference to a particular number.

My sincere thanks to my colleague, Joshua Hawks-Ladds for being the featured speaker today in the continuing monthly webinar series we’ve been doing on hot topics in employment law.

This month’s webinar focused on the unintended employment relationship; in other words, everything you wanted to know about temps, independent contractors and even franchisees (and their employees).  We had another great turnout and some great questions.

Through the wonders of technology, even if you missed it earlier, you can still get the benefits of the webinar. You can download the audio/video of the presentation here (it runs about an hour), or, if you prefer, you can just get the PowerPoint slides here.  Both are available anytime at drop.io/areyoumyemployee.  You can also go to Pullman & Comley’s new website where they will be posted shortly too. 

Discover Simple, Private Sharing at Drop.io

 

 

Our next webinar is set for December 9th at noon with a topic to be determined.  Just a reminder that the webinars run on the second Wednesday of every month.