Important information on the classification of independent contractors vs. employees

Department of Labor opinion letter

Issued April 29, the opinion letter addresses whether a service provider for a virtual marketplace company is an employee of the company or an independent contractor under the FLSA. It concludes that the workers who provide services to consumers through this company’s virtual platform are independent contractors, not employees of the company. To make this determination, the Department’s Wage and Hour Division applied its longstanding and unchanged six-factor balancing test, derived from Supreme Court precedent:

  • The nature and degree of the potential employer’s control
  • The permanency of the worker’s relationship with the potential employer
  • The amount of the worker’s investment in facilities, equipment, or helpers
  • The amount of skill, initiative, judgment, or foresight required for the worker’s services
  • The worker’s opportunities for profit or loss and
  • The extent of integration of the worker’s services into the potential employer’s business

Other factors also may be considered. The DOL “does not determine employee status by simply counting factors but by weighing these factors in order to answer the ultimate inquiry of whether the worker is ‘engaged in business for himself or herself’ or ‘is dependent upon the business to which he or she renders service,'” stated the letter.

While the opinion deals with a specific company, wages, and fair labor standards and is not legally binding, legal experts suggest it has an effect beyond the employer addressed in the letter. Under the Trump administration there is more flexibility in defining independent contractors and the likelihood that some employer/employee relationships would be challenged is lower.

The key issue is control. When classified as independent contractors, workers should be able to control their own schedules, work in other jobs or businesses, choose whether to accept a project, and not receive extensive training.

Cautionary note: The opinion letter is based on the facts presented by the company and these facts may not be true of other gig economy workers. It does confirm employers must conduct the six-factor test when confronted with a classification question. Further, employers still must abide by laws in states such as California, Massachusetts, Connecticut and New Jersey that are more restrictive.

National Labor Relations Board memorandum

The National Labor Relations Board (NLRB), handed an important victory to Uber when it determined that the company’s drivers are contractors, not employees. In the first major policy action concerning the gig economy, the NLRB’s move relates primarily to unionization and other collective activities.

The decision was outlined by the board’s general counsel in a memorandum dated April 16, but made public in mid-May. In effect, the action tells gig economy workers not to report labor abuses to the Board because they are outside its jurisdiction. This judgment and the opinion letter cited above reverse the stance of the Obama administration that people who found work through apps could be considered employees. While the memo can be reversed by future general counsels, it carries considerable weight in how the Board enforces the law.

California: Independent contractor classification dealt another blow – ABC test must be applied retroactively

About a year ago, the California Supreme Court issued a groundbreaking decision when it adopted a new legal standard known as the “ABC Test,” making it much more difficult for businesses to classify workers as independent contractors in Dynamax vs The Superior Court of Los Angeles County. In a subsequent case, Garcia v. Border Transportation Group, a Court of Appeals held that the new test is limited to claims arising under the California Wage Orders. A May 3 letter from the California DLSE confirmed that the Dynamex decision extends to obligations imposed by the Industrial Welfare Commission wage order, making employers who misclassify workers responsible for California Labor Code obligations such as overtime, minimum wage, reporting time pay, record-keeping, business expense reimbursement, and meal and rest periods.

Moreover, the case was remanded, and pending legislation (AB5) would extend the reach of Dynamex’s ABC independent contractor assessment to unemployment and disability insurance and workers compensation.

Recently, the U.S. Court of Appeals for the Ninth Circuit held that the “ABC” test, used in the employee-versus-independent contractor analysis in cases involving IWC Wage Orders, must be applied retroactively. The ruling in Vazquez v. Jan-Pro Franchising Int’l Inc. means that the “ABC” test not only will be applied to cases going forward, but also to disputes dating back to before the new test was enacted. Based on California’s statute of limitations, employers could be liable for misclassifying workers as contractors going back four years before the 2018 decision.

The decision has significant implications for businesses using a franchise model or independent contractor model, including gig economy companies, since employees have more rights and benefits than independent contractors. The court essentially held that the “ABC” test applies to both a franchisee and the parent franchisor when deciding whether a group of workers are formal employees, pointing to increased exposure to liability for franchisors.

The unanimous federal appeals court ruling vacated an earlier dismissal of the complaint, and remanded the issue back to the lower district court, with instructions to follow the test issued in the Dynamex ruling. California employers who routinely enter into independent contractor arrangements with individuals should promptly and carefully review the status of those workers.

Note: AB5 advanced May 29 with the state Assembly passing the legislation 59-15

For Cutting-Edge Strategies on Managing Risks and Slashing Insurance Costs visit www.StopBeingFrustrated.com

Fatigue: a hidden workplace risk

Americans are known as a 24/7 society and often take pride in their sleep deprivation. Although some workers experience fatigue at work because of their lifestyle, the workplace is the root of fatigue for many workers. And, according to a study by the National Safety Council (NSC), 74% of employers underestimate the prevalence of fatigue in the workplace and 73% do not communicate with employees about fatigue.

Overtime, high risk hours (night or early morning), demanding jobs that require sustained attention physically and/or mentally, long shifts, quick shift returns, and no rest breaks are among the top fatigue risk factors identified by the NSC. The common argument made by employers is that productivity will be reduced if steps are taken to address fatigue. And the current employee shortage in many areas has exacerbated the problem.

Yet, as the work schedule progresses, workers tire naturally as they use up energy. Too few breaks and long shifts add to the strain on body and mind, leading to reduced alertness and lack of concentration. But employees are reluctant to say they are too tired to do their job safely for fear of being perceived as lazy, uncooperative, or losing needed overtime pay.

The result is not only a decline in productivity, but also increased accidents and near-misses. According to the NSC, 32% of reported injuries and near-misses are due to fatigued employees. Workplace fatigue problems can be cured, but the hurdle is recognizing the correlation between incidents and fatigue and developing solutions that are compatible with productivity objectives.

While each employer’s situation is unique, here are some considerations:

  • Analyze the workload and staffing imbalances that necessitate excessive overtime. Look at options such as reengineering processes to reduce staff hours and cross training employees
  • Rotate shift schedules to ensure no one is always on the night shift. Rotating shifts is a best practice that entails scheduling a worker for the night shift for two weeks and then giving them time off and then scheduling for day shifts for two weeks
  • Implement the 12-hour rule: make sure employees have 12 hours off between shifts
  • Control the boredom factor by varying tasks. Employees doing monotonous work and tasks are more susceptible to fatigue
  • Provide a designated area for employees to rest. A 15-30-minute power nap when working long shifts can be a great refresher
  • Educate workers on the symptoms of fatigue, the impact of shift work on sleep-wake cycles and the best ways to manage it. Provide resources to deal with sleep disorders
  • Let employees know they share responsibility with the company for preventing fatigue and, given adequate time away from work, they are responsible for getting enough sleep
  • Use ergonomic equipment designed to reduce physical strains
  • Provide plenty of water, healthy snacks
  • Evaluate the lighting and temperature in the workplace as well as other environmental issues that can produce fatigue. Minimize humidity, noise, vibration
  • Monitor fatigue. Research technology that fits your industry
  • Have a risk management system, including reporting of fatigue-related incidents, investigation, training and auditing

Rather than adopting the attitude “that’s just the way things have to be to get the work done” understanding how the workplace is set up, how the work is handled, and how fatigue is a serious, costly risk can guide employers to develop a plan that mitigates risks and maintains productivity levels.

For Cutting-Edge Strategies on Managing Risks and Slashing Insurance Costs visit www.StopBeingFrustrated.com

Three compelling reasons why you should prepare a workers’ comp premium audit package

A premium audit happens every year, so some employers view it as routine and assume it will be correct, others take it lightly and may miss filing deadlines, but it is the savvy employer who prepares for the audit, in the same way they might prepare for an IRS audit. Here’s why:

  1. It likely will save you moneyThere are three important things to remember about Premium Auditors. First, their objective is to maximize your premium, after all they work for the insurance company. Second, overworked, they have tight time constraints. Third, the process is complex and prone to errors and omissions.While the list of possible errors and mistakes is endless, some common problems are incorrect job classifications, erroneous experience mod, improper charges for subcontractors, failure to cap payroll of executives, “excluded remuneration” included, credits or modifiers not applied, mathematical errors, multi-state exposures, and failure to take advantage of separation of payroll opportunities. If the employer does not provide complete data in a well-organized presentation, the auditor will default to what produces the greatest premium.

    When employers create their own audit package, they control the data the auditor observes, they simplify the auditor’s job, reduce probing questions, and build a reasonable defense for areas of disagreement. Since a Workers’ Compensation premium is estimated initially, the actual cost is determined through the premium audit, and proper preparation avoids higher and unexpected costs.

  2. Failure to complete audit in timely manner can double the cost of the premiumIn past years, the audit process was somewhat flexible. That changed in January 2017. The National Council on Compensation Insurance (NCCI) established an Audit Noncompliance Charge (NCCI item B-1429), which instructs workers’ compensation carriers to apply a charge up to two times the annual estimated premium, in addition to the annual estimated premium, for policyholders who do not complete their premium audits in a timely manner. Following the announcement by the NCCI, the mandate was adopted by independent rating organizations in Minnesota and Wisconsin (Minnesota Workers’ Compensation Insurers Association, and Wisconsin Compensation Rating Bureau, respectively).In addition, failure to cooperate with the audit may result in a cancellation of workers’ compensation coverage. Audit noncompliance will disqualify an employer from obtaining coverage from any insurance company until the outstanding audit is completed.

    The new form is attached to all new and renewal policies with effective dates on or after January 1, 2017. According to the new procedure, the carrier must make two attempts to obtain audit information and properly document those attempts. Policyholders who do not supply their payroll data after this point will be subject to the penalty charges.

  3. You can control the processThere are three ways an audit can take place: mail, phone, or a physical audit. Some employers receiving the mail audit pass it along to a finance officer or bookkeeper and that’s it. Yet, these audit forms are confusing and don’t ask the right questions. And if the person completing the form is not knowledgeable about workers’ comp, you will end up paying more than necessary. Similarly, a phone audit doesn’t always ask the right questions and errors can result from communication issues and misinterpretations.A physical audit is conducted on your premises. In addition to preparing the audit package in advance, employers should take steps to ensure the visit goes smoothly. Assign a knowledgeable, friendly person to work with the auditor and provide a clean, well-lit work space. Have the audit package ready and do not provide other information unless the auditor asks for it. Be sure a knowledgeable person escorts the auditor, if there’s a tour of the facility.

We are available to help. As Certified WorkComp Advisors, we are trained to prepare employers for audits, spot errors and get them corrected.

If you would want to build an error-free, overcharge-free audit download a FREE copy of our Work Comp AuditCheck Program, by visiting http://www.workcompauditcheck.com/.

For Cutting-Edge Strategies on Managing Risks and Slashing Insurance Costs visit www.StopBeingFrustrated.com