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Scarinci Hollenbeck, LLC
The Firm
201-896-4100 info@sh-law.comAuthor: Scarinci Hollenbeck, LLC|October 14, 2014
Before using independent contractors, it is imperative to verify that they are not actually employees. The issue is legal in nature so the legal principals must be thoroughly considered and applied. Mistakes, no matter how innocent, can result in costly lawsuits and significant legal penalties.
Worker misclassification occurs when a bona fide, common law employee is classified to be an “independent contractor.” In some cases, worker misclassification is intentional to avoid tax withholding, overtime pay and insurance requirements such as Workers Compensation and Unemployment Insurance. Sometimes it occurs simply because the employer did not properly understand the law.
To aid the analysis, the Department of Labor (DOL) recently published a revised factsheet on worker misclassification. As the DOL highlights, an employment agreement stating that a worker is an independent contractor hold very little weight, if any. Rather, the actual nature of the working relationship is determinative. Over 25 states also apply the “ABC” test which is even more difficult to overcome (as many prominent trucking companies have been learning in recent court cases).
Below are several key factors that are generally considered when determining whether an employment relationship exists:
When an employer-employee relationship exists, workers must be compensated in accordance with myriad employment laws to include the Fair Labor Standards Act (FLSA), which covers minimum wage, overtime, and recordkeeping requirements. The failure to include employees as participants in employee benefit plans (pension and health) can expose the employer and its officers, directors and shareholders to significant personal liability under the Employee Retirement Income Security Act (ERISA).
The Firm
201-896-4100 info@sh-law.comBefore using independent contractors, it is imperative to verify that they are not actually employees. The issue is legal in nature so the legal principals must be thoroughly considered and applied. Mistakes, no matter how innocent, can result in costly lawsuits and significant legal penalties.
Worker misclassification occurs when a bona fide, common law employee is classified to be an “independent contractor.” In some cases, worker misclassification is intentional to avoid tax withholding, overtime pay and insurance requirements such as Workers Compensation and Unemployment Insurance. Sometimes it occurs simply because the employer did not properly understand the law.
To aid the analysis, the Department of Labor (DOL) recently published a revised factsheet on worker misclassification. As the DOL highlights, an employment agreement stating that a worker is an independent contractor hold very little weight, if any. Rather, the actual nature of the working relationship is determinative. Over 25 states also apply the “ABC” test which is even more difficult to overcome (as many prominent trucking companies have been learning in recent court cases).
Below are several key factors that are generally considered when determining whether an employment relationship exists:
When an employer-employee relationship exists, workers must be compensated in accordance with myriad employment laws to include the Fair Labor Standards Act (FLSA), which covers minimum wage, overtime, and recordkeeping requirements. The failure to include employees as participants in employee benefit plans (pension and health) can expose the employer and its officers, directors and shareholders to significant personal liability under the Employee Retirement Income Security Act (ERISA).
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