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Independent Contractor versus Employee - US Labor Dept and Your Career

Independent Contractor versus Employee - US Labor Dept and Your Career

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Interpreters and translators, are you an independent contractor or an employee? The difference is very important because the distinction can affect your career and your livelihood. Under the Biden administration, officials are moving forward with decisions that will decide for you - independent contractor or employee. In our webinar, Bruce Adelson will discuss this fast moving issue and explain the legalities you need to know for your career.

Learning objectives
- Provide interpreters and translators with an understanding of the law of independent contractor versus employee
-Provide interpreters and translators with updates on federal regulatory and Congressional developments concerning the employment classification of workers
-Provide attendees with recommendations about their employment classification, the classification's impact on their careers and the language services industry, and prospects for US Labor Department and Congressional action

Interpreters and translators, are you an independent contractor or an employee? The difference is very important because the distinction can affect your career and your livelihood. Under the Biden administration, officials are moving forward with decisions that will decide for you - independent contractor or employee. In our webinar, Bruce Adelson will discuss this fast moving issue and explain the legalities you need to know for your career.

Learning objectives
- Provide interpreters and translators with an understanding of the law of independent contractor versus employee
-Provide interpreters and translators with updates on federal regulatory and Congressional developments concerning the employment classification of workers
-Provide attendees with recommendations about their employment classification, the classification's impact on their careers and the language services industry, and prospects for US Labor Department and Congressional action

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Independent Contractor versus Employee - US Labor Dept and Your Career

  1. 1. NATIONAL COUNCIL ON INTERPRETING IN HEALTH CARE
  2. 2. NATIONAL COUNCIL ON INTERPRETING IN HEALTH CARE Housekeeping • This session is being recorded • Use “Q&A” to send comments and questions to the hosts
  3. 3. NATIONAL COUNCIL ON INTERPRETING IN HEALTH CARE Welcome to our guest presenter! Bruce L. Adelson, Esq.
  4. 4. INDEPENDENTCONTRACTORSV. EMPLOYEES THE US LABORDEPARTMENTAND YOUR CAREER By Bruce Adelson, Esq. © Bruce Adelson, 2021 All Rights Reserved 4
  5. 5. What Do We Do Now? Today’s Material is the Property of Federal Compliance Consulting LLC & Bruce L. Adelson. All Intellectual Property Rights Retained. Today’s Material is Educational & Informational Only. No Legal Advice is Provided. © Federal Compliance Consulting LLC and Bruce L. Adelson, 2021 All Rights Reserved. Unauthorized Use Prohibited 5
  6. 6. Independent Contractorsv. Employees People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. IRS 6
  7. 7. Independent Contractorsv. Employees However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax. IRS 7
  8. 8. Independent Contractorsv. Employees You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed. • If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor and your earnings are generally not subject to Self-Employment Tax. IRS 8
  9. 9. Independent Contractorsv. Employees • Worker misclassification involves classifying workers as 1099 independent contractors when they should be classified as W-2 employees. Businesses are required by law to ensure their workers- both W-2 employees and 1099 independent contractors- are properly classified. • When workers are improperly classified, they are deprived of various rights and protections including the minimum wage, overtime compensation, unemployment insurance, healthcare, pension, and workers’ compensation insurance. • Misclassification undermines federal and state revenue collections and creates unfair playing field for employers who properly classify their workers. 9
  10. 10. Independent Contractorsv. Employees Depending on the severity of infractions, fines for worker misclassification levied by the IRS, DOL and state agencies can total millions. IRS penalties for misclassifying workers as 1099 contractors can range from 22%-43% of all contractors’ earnings retroactive to the initial engagement. 10
  11. 11. Independent Contractorsv. Employees Example…. $7.5 million settlement in a lawsuit involving 115 pharmaceutical delivery drivers who claim they were misclassified as independent contractors and did not receive proper overtime pay, according to a filing in the US District Court for the Eastern District of New York. The lawsuit is Fernandez, et al v. Kinray Inc., et al; case no. 1:13-cv-04938. 11
  12. 12. Independent Contractor v Employee 12
  13. 13. Independent Contractor v Employee A US government ruling could, potentially, bring about the reclassification of anywhere from 66,905 to 334,526 independent contractors to full-time workers and cost employers between USD 1–6bn in payroll expenses each year — in California alone. This, according to “experts” cited in a white paper published by the Joint National Committee for Languages (JNCL) after more than 50 language industry representatives met on Capitol Hill Slator 2019 13
  14. 14. New Rules, Priorities, Enforcement Independent Contractor v. Employee 14
  15. 15. Independent Contractor v Employee Under Fair Labor Standards Act (FLSA), an employer is required to pay its employees at least the federal minimum wage, provide overtime pay in any workweek that an employee works more than 40 hours, and keep and preserve certain records regarding employees. 15
  16. 16. Independent Contractor v Employee California Assembly Bill 5 Became Law in 9/19 • AB 5, passed and signed last month, virtually bars Californians from working in the gig economy. The law, which implements a California Supreme Court decision, imposes a three-pronged test that identifies who’s still free to be a contract worker and who has to be a hired employee. 16
  17. 17. Independent Contractor v Employee AB5 exempts several professions from this test: doctors, insurance agents, lawyers, hairdressers, engineers, to name a few. However, translators and interpreters (T&I) have not been included in this exemption. ATA SPD Blog 17
  18. 18. Independent Contractor v Employee FLSA applies only to employees, an employer does not have to follow the law’s minimum wage, overtime pay, or recordkeeping requirements for its independent contractors. Growing number of challenges by contract workers claiming a right to collect minimum wages and overtime pay on the basis that they should be considered employees. 18
  19. 19. Independent Contractor v Employee In a major win for gig economy companies, California voters have passed a costly and controversial ballot measure to exempt firms like Uber and Lyft from having to classify their gig workers in the state as employees rather than as independent contractors. Backed by more than $200 million from Uber, Lyft, DoorDash, Instacart and Uber-owned Postmates, Proposition 22, or Prop 22, is the costliest ballot measure in California's history. CNN 19
  20. 20. Independent Contractor v Employee • Ride-hailing drivers and the Service Employees International Union filed a lawsuit against California on Tuesday that asks the state Supreme Court to invalidate Proposition 22 on grounds that it is unconstitutional. • Proposition 22 sought to avoid classifying gig workers as employees, as required by California law. The measure was passed by 58% of the state’s voters in the November election after companies like Uber Technologies Inc. MarketWatch, January 2021 20
  21. 21. Independent Contractor v Employee Razak v. Uber: The Third Circuit Addresses Driver Classification – March 2020 Third Circuit uses a six-factor test from Donovan v. DialAmerica Marketing, Inc.: 1) the degree of the alleged employer’s right to control the manner in which the work is to be performed; 2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; 3) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers; 4) whether the service rendered required a special skill; 5) the degree of permanence of the working relationship; [and] 6) whether the service rendered is an integral part of the alleged employer’s business. 21
  22. 22. Independent Contractor v Employee Third Circuit notes that the extent to which an employer controls a worker is “highly relevant to the FLSA analysis.” Worker’s “degree of independent business organization and operation.” 22
  23. 23. Independent Contractor v Employee • A worker can be an independent contractor only if he or she: • A) Is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; • B) Performs work that is outside the usual course of the hiring entity’s business; and • C) Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. • Is there a freelance worker who could possibly pass Part B? Times Union Of San Diego, 10/19 23
  24. 24. Independent Contractor v Employee WhileAB 5 was written with companies like Uber in mind, the translation and interpreting industry has spoken out in regards to how this will affect a large number of professional linguists working in the field. Despite this opposition, the bill was passed without any sort of exemption for translators and interpreters. Both the American Translators Association (ATA) and the International Association of Conference Interpreters (AIIC) have both spoken out against the law, highlighting the need for an exemption. Language Magazine, 10/19 24
  25. 25. Independent Contractor v Employee This seems to essentially ban how many translation companies conduct business currently. The ATA points out that “few language service providers in our industry have sufficient work to hire individual translators and interpreters as employees for every language on the market…. 25
  26. 26. Independent Contractor v Employee Lorena Ortiz Schneider, a professional interpreter and translator for 27 years, says her industry was overlooked when discussions about exemptions were happening. “Most people don’t know we exist,” Ortiz Schneider said, referring to fellow translators and interpreters who work in administrative hearings, courts, classrooms and medical centers, mostly on a contract basis. They didn’t get an exemption to AB 5, meaning the way they work, and whether they’ll be able to work, is now in question. Capital & Main, 10/19 26
  27. 27. Independent Contractor v Employee “We mobilized too late, starting in mid-June,” Ortiz Schneider admits. “We’re not a well-organized lobbying group, historically.” She says that while AB 5’s goal of protecting workers is worthy, it doesn’t take into account how interpreters and translators work. The 2010 Common Sense Advisory market research study concluded that the vast majority of interpreters in North America are independent contractors and that “being nailed down to a ‘job’ would make meaningful communication and language access virtually impossible.” 27
  28. 28. Independent Contractor v Employee US Department of Labor (DOL) published its notice proposing to withdraw the new rule – issued two weeks before the change in Presidential Administrations – allowing employers to more easily classify workers as independent contractors under federal law. The rule, entitled “Independent Contractor Status under the Fair Labor Standards Act,” was considered a major win for employers, and specifically for companies involved in the gig economy. 28
  29. 29. Independent Contractor v Employee In the rule withdrawal, DOL states that the rule’s narrowing would result in more workers being classified as independent contractors not entitled to the FLSA’s protections, contrary to the FLSA’s purpose of broadly covering workers as employees. The rule may also have a disproportionate impact on low-wage and vulnerable workers, given that women and people of color are overrepresented in low-wage independent contractor positions. The Department cited a report which found that 42% of “gig economy or platform workers” and 45% of “self-employed sole proprietors” make less than $20,000 a year. 29
  30. 30. Independent Contractor v Employee Employers must now rely on DOL’s previous guidance, such as Fact Sheet 13, when classifying workers as independent contractors or employees. Employers who misclassify employees may be liable for significant damages under both federal and state law and should review the law in their respective jurisdictions to ensure accurate classification. 30
  31. 31. Independent Contractor v Employee The U.S. Supreme Court has on a number of occasions indicated that there is no single rule or test for determining whether an individual is an independent contractoror an employee for purposes of the FLSA. The Court has held that it is the total activity or situation which controls. Among the factors which the Court has considered significant are: • The extent to which the services rendered are an integral part of the principal's business. • The permanency of the relationship. • The amount of the alleged contractor's investment in facilities and equipment. • The nature and degree of control by the principal. • The alleged contractor's opportunities for profit and loss. • The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor. • The degree of independent business organization and operation. 31
  32. 32. Independent Contractor v Employee DOL suggests that revoked rule may also have had a disproportionate impact on low-wage and vulnerable workers, given that women and people of color are overrepresented in low-wage independent contractor positions 32
  33. 33. Independent Contractor v Employee Definition of employee is becoming one that depends on which party holds the White House. Courts may view any DOL test with skepticism and thus cause them to fall back on the same varying and elastic tests they have used over the last 80 years in the absence of a DOL definition of employee. 33
  34. 34. Independent Contractor v Employee ABC Test An individual must be classified as an employee unless: • “(A) the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact; (B) the service is performed outside the usual course of the business of the employer; and (C) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.” 34
  35. 35. Independent Contractor v Employee The ABC test imposes a higher burden on businesses classifying workers as independent contractors than the economic realities test. Under the test, the vast majority of workers will likely be considered employees, rather than independent contractors. Proposed as the governing test under the National Labor Relations Act as part of the PRO Act recently passed by the U.S. House of Representatives. 35
  36. 36. Independent Contractor v Employee Merely labeling a worker an independent contractor or having them sign an agreement does not necessarily make them an independent contractor and not entitled to overtime. Not always clear whether a worker is an employee or an independent contractor. No set number of factors that qualifies a worker and this determination must be made on a case-by-case basis. 36
  37. 37. Independent Contractor v Employee Factors indicating that a worker is an employee: • Employer has the right to direct and control the worker (even if he does not do so) • Paid on an hourly, weekly, or monthly basis • Uses equipment, tools, and materials provided by the employer • Receives predetermined earnings and cannot realize significant profits or loss • Schedule dictated by the employer • Trained by the employer, either formally or informally • Receives benefits, such as insurance, pension, or paid vacation or sick leave • The relationship between employer and worker is ongoing – not on a job or project basis 37
  38. 38. Independent Contractor v Employee Factors indicating that a worker is an independent contractor include: • A contract stating the worker is an independent contractor, although this is not determinative • Free to determine how the work gets done • Paid for each individual job • Uses his own equipment, tools, or materials • Can personally realize significant profits or losses in the business • Works temporarily or on individual jobs 38
  39. 39. Independent Contractorsv. Employees • Facts that provide evidence of the degree of control and independence fall into three categories: • Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job? • Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) • Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? 39
  40. 40. Independent Contractorsv. Employees • There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. • The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination. IRS 40
  41. 41. Independent Contractorsv. Employees Example – 2014 Lowe’s Home Centers agreed to a maximum settlement amount of $6,500,000 plus an additional 25% for attorneys’ fees to settle a class action suit brought by its installation contractors alleging they were misclassified as independent contractors instead of employees. 41
  42. 42. Independent Contractorsv. Employees Lowe’s, which offers contractors to install products purchased at its stores in customers’ homes, classified these installers as independent contractors, while at the same time allowing them to wear Lowe’s uniforms, attend Lowe’s training sessions, and identify themselves as installers for Lowe’s. These actions and others blurred the fine line between employee and independent contractor. As employees, they would have been entitled to the benefits offered to other employees, such as medical insurance, vacation leave, disability coverage, and a 401(k) plan, and these benefits added together equaled a large settlement demand. 42
  43. 43. Independent Contractorsv. Employees Misclassify your independent contractor and you can face government audits (unemployment social security…) and wage and hour lawsuits from your contractors who claim they are owed overtime. Under federal law overtime liability is generally double damages plus attorney fees, going back two to three years – but state law can increase these amounts. In Maryland, for example, overtime liability can be up to treble damages plus attorney fees, going back three years. 43
  44. 44. Independent Contractor v Employee 44
  45. 45. New Rules, Priorities, Enforcement Bruce Adelson badelsonfcc@verizon.net badelson1@comcast.net LinkedIn Twitter 301-762-5272 45
  46. 46. NATIONAL COUNCIL ON INTERPRETING IN HEALTH CARE Bruce L. Adelson, Esq. badelsonfcc@verizon.net badelson1@comcast.net LinkedIn Twitter 301-762-5272 Use “Q&A” to send comments and questions to the hosts. Q&A
  47. 47. NATIONAL COUNCIL ON INTERPRETING IN HEALTH CARE • Webinar evaluation form • Contact NCIHC at info@ncihc.org • Participate in NCIHC Announcements
  48. 48. NATIONAL COUNCIL ON INTERPRETING IN HEALTH CARE Thank you for attending!

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