IC vs. employee update: As enforcement heats up, flooring dealers need to be vigilant

February 08, 2018

January 22/29, 2018: Volume 33, Issue 6

By Ken Ryan

 

The debate over the misclassification of employees—treating them as independent contractors instead of employees—became a hot-button issue during the Obama administration after the U.S. Department of Labor (DOL) issued new guidance that potentially put some flooring dealers at risk for the way they use subcontractor installers.

Fast forward to 2018 and a Republican administration and GOP-led Congress are calling the shots. Is the coast clear? Not exactly. While there have been some tweaks to the interpretation of language, the fact remains the law still exists and all flooring businesses need to be careful.

Jeff King, counsel to the World Floor Covering Association (WFCA) and author of “The Independent Contractor,” said his ongoing message to specialty flooring dealers is to be vigilant. “I want to emphasize the continuing importance of complying with the independent contractor rules,” King told FCNews. In late December, King noted an administrative law judge at the National Labor Relations Board (NLRB) ruled misclassification of an independent contractor is an unfair labor practice under the National Labor Relations Act.  “This is an issue that will continue to confound flooring dealers and contractors until a single basic standard is developed,” he surmised.

New developments
In June 2017, U.S. Secretary of Labor Alexander Acosta announced the “withdrawal” of the U.S. DOL’s 2015 and 2016 informal guidance on independent contractors, essentially a relaxation of enforcement. The Obama-approved independent contractor “interpretation” (issued July 2015) discouraged the misclassification of employees as independent contractors. This interpretation also caused deep concern among many business owners who used independent contractors.

In response to Acosta, David Weill, who served as the administrator of the Wage and Hour Division of the U.S. Department of Labor under Obama, said from a practical perspective, “removing the guidance will change nothing in terms of employer responsibilities—the law is still the law. But it did potentially signal an intention to move away from addressing worker misclassification as a fundamental problem worth addressing. That is disturbing.”

However, despite Acosta’s move, others say the withdrawal is unlikely to significantly change the legal landscape because the issue is now handled mostly in a growing number of private class-action lawsuits and state unemployment insurance audits and proceedings—not by the U.S. DOL.

In July, legislation was introduced to protect the independence of independent contractors. U.S. Sen. John Thune (R-S.D.), a member of the tax-writing Senate Finance Committee, introduced the New Economy Works to Guarantee Independence and Growth (NEW GIG) Act, or S. 1549. This legislation creates a safe harbor for those who meet a set of objective tests that would qualify them as an independent contractor, both for income and employment tax purposes. “Today’s fast-growing gig economy has made it easier for people to offer unique services like home repair and cleaning, child care, food delivery or ride sharing through easy-to-use mobile applications that can be opened with a simple swipe of a finger,” Thune said. “While these gig economy companies have created thousands of new jobs, they’ve also faced new challenges when it comes to how the service providers are classified by the IRS. My legislation would provide clear rules so these freelance-style workers can work as independent contractors with the peace of mind that their tax status will be respected by the IRS.”

The safe harbor focuses on three areas that are intended to demonstrate the independence of the service provider (IC) from the service recipient and/or the payer based on objective criteria rather than a subjective facts-and-circumstances analysis:

  1. The relationship between the parties (e.g., job-by-job arrangement, the service provider incurs his own business expenses, the service provider is not tied to a single service recipient);
  2. The location of the services or the means by which the services are provided (e.g., the service provider has his own place of business, does not work exclusively at the service provider’s location, provides his own tools and supplies); and
  3. A written contract (e.g., stating the independent contractor relationship, acknowledging that the service provider is responsible for his own taxes, providing the service recipient’s reporting and withholding obligations).

In the meantime, enforcement continues. The California Labor Commissioner’s Office recently ordered Oakland-based Attic Pros, an attic cleaning company, to pay more than $3.5 million in back wages and penalties for misclassifying 119 workers as independent contractors. The agency said investigators found that Attic Pros’ employees worked 10 to 14 hours per day up to six days a week and were paid a daily rate regardless of the actual number of hours worked, thus putting their earnings below minimum wage.

“There are so many abuses of it,” King said, citing other cases such as Uber, Lyft, Menards and FedEx. (FedEx Ground Package System agreed to pay drivers in 20 states $240 million to settle lawsuits claiming the second-largest U.S. parcel delivery company misclassified them as independent contractors.)

Despite encouragement from the WFCA/CFI for flooring dealers to either employ their installers or hire a third-party firm to do the work, King said they have not seen “big movement” on the part of specialty dealers to progress in either direction. There remain many “mixed” models where the same retailer uses both employee installers and subcontractors. King advises these dealers to call them “sub” and not “independent contractors” and to make sure the subs have employee ID numbers and are registered as an independent business.

King believes the IC issue is not going away, no matter who occupies the White House or which party controls Congress.

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