This webinar will explore the requirements – and consequences – for classifying workers as employees or independent contractors. Many employers falsely assume that it’s a simple matter of choice, but it isn’t. This webinar will familiarize you with Federal and State law requirements that will guide you in the proper classification and compensation of your workforce.
Presented by Elizabeth K. Dorminey & Thomas L. Walker
Elizabeth K. Dorminey (00:00:00):
My name is Betsy Domany. I'm a principal at Wimber Land Lawson, and my colleague Tom Walker is here to and we're going to talk about misclassification today. Let me say first that it seems particularly appropriate that we should be doing this on the Friday before Labor Day, since we're labor and employment lawyers. I don't really think it was designed to be our holiday, but we'll claim it for today. And we'll just get started. First of all, let's, let's narrow the issue down. We are talking today about misclassification of employees, and that means different things in different places. The i r s, for example, takes a particular interest in whether people are classified as employees or independent contractors with regard to the question of whether they're given W four forms and or 10 99 forms at the end of the year, and whether the employer pays a portion of required withholding taxes and social security and so forth, or whether the burden falls on the employee to do it.
Elizabeth K. Dorminey (00:01:07):
Some employers think it's just a matter of choice as far as the IRS is concerned, it is not. So that's a topic, that's a big one, but we're going to kind of leave that to one side. Today. the other kind of misclassification that comes up frequently, but that's not going to be our focus today, although we can't answer questions, is about whether an employee is classified properly as an hourly employee who is entitled to earn overtime when they work more than 40 hours in a week, or whether they may be properly classified as a salaried employee, at which point they're paid a fixed amount for all the hours they work, no matter how many or few that may be in a particular week. And there again, there are some employers who kind of think that maybe it's a question of choice that you can choose one or the other, or perhaps that if you pay somebody a salary, then you don't have to pay them overtime.
Elizabeth K. Dorminey (00:02:05):
And neither of those things is true, and both can be expensive. So that's another topic that we can address if you like, at q and a, but it's not the focus. Today's focus is really going to be on two other kinds of misclassification. And the first of those is whether someone is an employee or an independent contractor with respect to whether the employer is on the hook for workers' compensation, either payments because someone was injured or making the withholding payments upfront. And that is an area that Tom has particular expertise on. And I'm gonna let him launch into that in just a minute. The final of the four kinds of misclassification arguments that we're going to address, I'll take up toward the end, and that is the question of whether someone is an employee or an independent contractor for purposes of the wage and hour administration at the US Department of Labor. There again, if you may remember from the news stories about companies like U p s many years ago and Uber more recently, that can be a very expensive mistake to make, and we would like to urge everyone to consult counsel, and try to avoid something like that. But anyway, if, if Tom's ready and he looks as though he is, I will pass the virtual microphone over to him. And he will talk to you about workers' comp,
Thomas L. Walker (00:03:37):
Hi Tom Thomas Walker, and I'm one of the attorneys at Wiley Lawson. I've been practicing workers with compensation defense and insurance defense and general litigation for, I guess 30 some odd years now. Yeah, 30 years, exactly. It years of scope buying is, is hard to keep track. But in workers' compensation, one of the conversations I seem to have every year, I'll get an employer call me panicked and, and tell me, I've, I've just got this request for a hearing or I've got a, a notice of a hearing and I don't understand because this person was an independent contractor, they weren't my employee. You know, we had an agreement that said he was an independent contractor. I don't know what's going on. And so that always embarks on what generally comes to be a very painful conversation for the employer.
Thomas L. Walker (00:04:36):
So, you know, they'll, they'll, I'll, I'll ask 'em all, do you have insurance? And they'll of course tell me no, because all their employees, their crew are independent contractors. And as you are probably aware if you have three or more employees in Georgia you have to have workers' compensation coverage. So a lot of small employers or small businesses looking to save costs and, and not have to have the expense of workers' compensation. They will then, you know, hire a crew, hire their people, and they'll deem them all independent contractors. And then that way they'll say, well, we have less than three employees, so we don't have to have workers' compensation coverage. And like I said, it always starts up and they say, yeah, you know, I had this written agreement where they're they said that they're an independent contractor and I pay them as 10 99 employees.
Thomas L. Walker (00:05:32):
And that's not really the test. The, the test all goes to control. And it's the same in workers' compensation as, as the same in the employment setting. It the, the test about whether or not a person's an independent contractor as how much control the employer asserts. So the first thing I'll ask them you know, I'll ask 'em what their business is and what they were, were contracted by their client to do. And then I'll ask 'em, well, when you hired these independent contractors, did you tell them, I don't care how you get to this result, but this is the result I want. And, you know, usually say, no, no, we, you know, we tell 'em stop by step how we, you know, want it done. We tell 'em the process, we want done the order and everything about how it does. So again, it shows that they're asserting control.
Thomas L. Walker (00:06:24):
And then I'll ask 'em did you you know, and you could probably have his dates certain as you, where you want the end result by. But I'll, you know, ask 'em did you have set hours for these people? Oh, yeah. You know, we have 'em come in at nine and we'll have 'em leave, you know, at six or whatever. I said, well, you know, do you schedule their breaks? Oh, yeah. We tell 'em when they can take their breaks and how long they can take their breaks. And I said, do you have anyone super? Oh yeah, we have a supervisor out there. You know, that's the other employee, or, or, yeah, I go and supervise 'em personally. And you know, the, the, the more control they exert, the less likely they're gonna be an independent contract. And usually by that when they, when they tell me that they've supervised how the work is being done when they've set the hours, that's pretty much the, the end of it there.
Thomas L. Walker (00:07:19):
Kind of to add insult to injury, I'll, I'll ask, you know, did you supply tools or did they bring their own tools? Oh, no, we supplied all their equipment through out tools. And then just to the, the Cuda Gras usually well, how do people get to the work site? Oh, we pick up, we have 'em come to our, our, our location. We transport them out there. So at the end of that, that becomes very clear that these were not independent contractors, despite what the agreement might have, you know, been between the employee and the employer and that these the company should have had workers' compensation and insurance and that they're, they're, they're going to lose if they go to a hearing. And the, the consequences for an employer of being uninsured are considerable. So if you, with your income benefits, you have a a 20% add-on penalty.
Thomas L. Walker (00:08:13):
If you haven't had workers' compensation insurance for any disability benefits that you pay out on top of that, if the employee has to secure an attorney and pursue a case with an attorney, the employer is going to be responsible for the employee's attorney's fees in addition to that. And those are not as common. But there's a, a civil penalty for failure to pile the state board's rules. And there's also the possibility of a misdemeanor penalty be or misdemeanor criminal charge of being filed against the individual who should have secured the the, the workers' compensation. The other thing that, you know, now, if you're a larger employee might say, well, this doesn't really apply to me because, you know, we have our, our, well, actually, I wanna step back for a sec.
Thomas L. Walker (00:09:10):
There's another, another ramification to not crop properly classified employees. So in workers' compensation, I said, if you have three or more employees, you have to have coverage. So let's say you're an employer that has two officers and you're have not exempted the officers out. So there, you've got your two employees right there. If you hire an independent contractor to do a job or more than one independent con contractors, you get the three or more. Then you're in a seasonal business and you no longer need those two people, you then dismiss them. You're still on the hook for, for workers' compensation coverage. If you should have had it. Once you get to that three employee threshold, you, you know, you have to always maintain the insurance. You can't just, you know, have it for the periods that you have, the three employees, and then not when you contract to a smaller amount.
Thomas L. Walker (00:10:13):
So that's, you know, something we're having, you know, an independent contractor you know, we're having multiple independent contractors could have a lot of ramifications for a smaller employer who isn't aware of that. Then they, like I said, now getting to the point, if you're a larger employer, you might ask yourself, well, well how does this affect me? Cause we have our coverage. We you know, have our, our our three or more, you know, we have more than three employees, you know, what are the ramifications for us? Well, if you are a large employer contractor and you hire different, you know, smaller, you know, subcontractors to, you know, contractors, some of your work and they don't have insurance you might be on the hook as a statutory employer. So, you know, you might contract with some, like, I guess Betsy, you might have more knowledge about this, but if you're a a up poultry processor and you hire somebody to bring in a crew of chicken catchers and that person says, no, no, they're all independent contractors you know, we don't you know, we, we have agreements with them or they're gonna be, you know, independent contractors and then somebody gets hurt, it might be a situation where you are now gonna be on the, the hook because they aren't actually independent contractors as a, a statutory employer.
Elizabeth K. Dorminey (00:11:43):
If I could just drop a footnote there, Tom, cuz you do raise an interesting point. And this is, this is kind of a common theme, which I think Tom will agree. If there's a doubt about whether somebody is an employee or an independent contractor, I can tell you with a high degree of confidence that whatever government agency is investigating the manner is going to definitely err on the side of finding the person an employee and not an independent contractor. So you can pretty well count on the presumptions being stacked against independent contractor in all of these situations. The other point that Tom is touching on, which is an important one to remember here, is the concept of joint employment, which does come up in different places throughout employment law. And in that scenario, for example, the whoever the chicken catching crew runner person is might be contracting with the poultry processor and potentially, you know, providing that service. But it is more likely than not that if a wage and hour investigator or a private attorney bringing a case on behalf of an injured member of the chicken catching crew, they're going to make a big play for making the deeper pocketed employer who contracts with the ostensible independent contractor, a joint employer, thereby extending the liability for any damages to that vigor employer. Just wanted to make that point, Tom, so I'll let you resume.
Thomas L. Walker (00:13:18):
No, and and that's a good, a good point that Betsy had there. You know, for those who have been around workers' compensation for any period of time, you may recall that back from the nineties, the and, and for all the decades leading up to the nineties that workers' compensation was to be liberally construed, the general assembly amended the law sometime in like in 96, mid nineties, and they said, you know, it's, it's to be fairly construed between the employer and the employee, yet it was still to be liberally construed to find coverage. So I think, you know, when the point that Betsy had is that agencies will look to find the employer employer relationship quicker than they will want to find independent contract relationship. I think the same could be, you know, said with workers' compensation that the state board is going to look to find that coverage applies more than it's gonna look to, to not, I mean, if you really if you want to use the independent contractor's defense, you really, really have to have, you know, legitimately have these people be independent contractors.
Thomas L. Walker (00:14:30):
If you are doing this as simply a means to avoid having three or more employees to not pay, you know, for workers compensation, you are probably not going to be successful with that. Because if, if, I mean, if you, when you have an independent contractor, you really have to be hands off. You could probably say, we want this result by, you know, this date. And that's probably about as much the control as you can, can have anything more than that you're, you're going to be on, on the hook for it. One of the other you know, things that you might wanna be aware of. So if you're a, a landowner and this gets in the statutory employer as well. The law has always been that a landowner is not going to be a statutory employer because they're generally not contractors.
Thomas L. Walker (00:15:27):
The general of the court, Georgia Court Supreme Court has clarified that, that there are times when a, a landowner can also be a, a general contractor and then fall into the statutory employer context. And, you know, the, the big seminal case had to deal with Georgia Power and plant Hatch, I believe, where they were doing a lot of, of, of work to the renovations of, of plant hatch. They asked some people who were injured and Georgia Power tried to say, well, you know, or, or there was questions about whether or not there were a statutory employer not. And I think that actually that was a situation where Jo Georgia Power did want them to be considered a statu, considered a statutory employer because they were trying to avoid civil liability.
Thomas L. Walker (00:16:26):
They didn't wanna be sued for the injuries to these people on, on their property. And the Supreme Court said, yeah, in this case they were entitled to be a statutory employer and they were entitled to to the workers' compensation bar for lack of a better term for calling it. Because they were acting not only, they were not only the owner of the plant, but they were also acting as their own general contractor. But, you know, so that's an interesting case, but you might say, well, how, you know, does it apply to, well, if you're a smaller business like a gas station owner that might be a situation where it would be very important to you. Because you might be also to qualify as not only the landowner but also as a, a general contractor.
Thomas L. Walker (00:17:18):
And that, you know, would come more into the fact when if you are, you know, redoing your station, you are you know, changing over from one job or to another job or, and you have a lot of construction work done you know, the, the people that get hired to do the work you know, you might find yourself where you have subcontractors who are, you know, hiring independent contractors and that some of those people get hurt and they might wanna sue the, the business, but you might be able to go have it go into under worker's comp as opposed to civil liability by holding yourself out as a statutory employer because you are both a general and the land owner at the same time. So that's
Elizabeth K. Dorminey (00:18:08):
If I can make a underscore that point too, again, Tom, cuz that really goes to the essence of what workers' comp is all about. And it's good to be reminded of that from time to time. Workers' compensation insurance was designed in order to prevent employers from being ruined whenever an employee was injured on the job. And that's the, the, the whole idea behind it is that you have the worker's compensation system and insurance to provide medical care and some sort of recompense and disability rating or whatever, you know, ensues when someone is injured as an alternative to being taken to court and sued for everything you're worth and have a, you know, a multimillion dollar potentially personal judgment against the business owner. So it, it may seem onerous at times when you get the bill for the insurance premium or something like that, but in the long run it is very much a system that is designed to protect business owners rather than you know, keep them from being, being ruined in the unfortunate event that somebody is injured on the job. One other little note that I think is worth remembering here is that just because someone's shall we say paperwork is not entirely an order doesn't matter up bit to the worker, state worker's comp board, they are interested in making making whole any worker who is injured and whether that worker is someone who is a legitimate US taxpayer and has their I nine all in order or not, is really not an issue for the worker's comp board. They just don't care. So,
Thomas L. Walker (00:19:53):
Yeah. Yeah, and that's an interesting point that again, this was a change in the, in the nineties that the, the law specifically stated that it, it was, it it said that Canadian employer or people who are Canadian would be treated the same as American citizens, but others would not be. And that caused all sorts of, of of you know, due process issues. And it was eventually the law was amended that everyone who gets hurt would be treated the same under, under Georgia workers' compensation law. So, you know, that goes to the best's point that if you have a person who is documented or not documented, if they get hurt y you know, you better have coverage for them.
Elizabeth K. Dorminey (00:20:47):
Okay. Well, some good, good advice. Do we want to take a moment for any questions about worker's comp or shall we just forge ahead and talk about wage and hour issues?
Thomas L. Walker (00:20:59):
That's really all I've got on worker's comp. Oh, I'm happy to talk to people about any sort of worker's compensation issues or insurance defense issues that they may want to, you know, have questions on. But that's really, that is, it's very simple. If you exert control over the individual, they're likely gonna be considered employee. If you're very, very hands off and I mean really, you know, hands off then they may be an independent contractor.
Elizabeth K. Dorminey (00:21:32):
Well, with that, and actually that's a really good segue into talking about the wage and hour side of things because they're the the, it's all about control again, and it's about what people actually do and not what their job titles might be. And formal agreements can just absolutely go out the window. If the the court or wage and error administration, if it's a administrative proceeding, determine using usually pretty much a common law test of control over and the ability to direct the activities by the employee or the independent contractor, the worker, let's just say for a neutral term. The the question whether somebody is an employee or an independent contractor from the wage and hour division's perspective turns on whether, you know how the employees are paid, what kind of record keeping requirements are imposed on the employer.
Elizabeth K. Dorminey (00:22:32):
And it can even affect things outside that as such as the the ability to sue under the equal Employment Opportunity Commission for discrimination or harassment. Because typically an independent contractor is not someone who is covered by, by those laws. Again, it's the the, the elements that, that Tom identified that are more or less the same. Of course, the government couldn't actually have the exact same test cuz that would be too easy. But it was a, a very similar test for determining whether someone is actually an employee. I mean, do, do you tell them when to show up? Do you tell them whether they need to wear a particular kind of shirt or uniform? You tell them how to do what they want to do. How permanent is the relationship between the two parties, between the employer and the independent contractor slash employee?
Elizabeth K. Dorminey (00:23:26):
Most of the time, again, if there's a question, the burden is going to be pretty much for all practical purposes, if not strictly speaking legally on the employer to demonstrate that the individual's not an employee if the case comes to any kind of, of investigation or litigation. The where was I going with this? There's, there's, there's a, a, a, a subsidiary concern a lot of times with people who have a regular relationship with someone and they claim that they're an independent contractor. And if you do things correctly, you can certainly have someone work for your company on a regular basis and yet be an independent contractor. An example that's fairly easy to get around is that of a bookkeeper. Let's say you have a very small business and you have someone come in once a week or once a month to reconcile all your ins and outs and your paperwork.
Elizabeth K. Dorminey (00:24:28):
If that person does the work when and as they see fit without a lot of direction from the business owner, then it's entirely defensible to treat that person as an independent contractor and pay them a 10 99 at the end of the year instead of a w2. The another aspect is, is whether the person has, you know, whether they use their own tools or not, but again, none of these factors is ever really determinative. There's, there's a, there's a, a fairly annoying lack of bright lines in a lot of these questions, and you have to look at the sort of total picture about what the person is is doing time, place and manner, as Tom talked about, of how you get the work done. I mean, do you have to show up on a particular schedule that's going to push it more toward the employee catalog?
Elizabeth K. Dorminey (00:25:26):
What am I trying to say to the employee column as opposed to the employee? An independent contractor column? The the, the, the consequences of treating an employee, someone who should be classified as an employee, as an independent contractor, can be pretty severe in terms of the payment of minimum wages and the payment of overtime after the fact. It's, if it's determined that they should have been paid in another, if they should have been paid on an hourly basis and paid minimum wage, the the opportunities for the amount of money due to escalate can, can be pretty tremendous, particularly, whereas as is the modern way, you have to pay people a pretty generous hourly rate, even if they are independent contractors. Another one of those litmus test factors is do you wanna say something Tom
Thomas L. Walker (00:26:24):
<Laugh>? No, no, I didn't.
Elizabeth K. Dorminey (00:26:26):
Okay. Well, I was gonna say normally an independent contractor is someone you pay by the job, for example, someone who comes in to install a washing machine or someone who's doing tree work on your property. But it's not, again, determinative because you can have independent contractors that you pay by the hour, for example, a a cleaning service that comes in and you don't tell 'em how to clean, you just say, make the place clean that you probably could pretty defensively establish as an, as an independent contractor. Once again, you know, the error errors can be expensive and it helps to have sometimes a written agreement, although that's not determinative. I had the pleasure of working on a case that was, had quite a colorful cast of characters, but I will, I will discuss only a case that was similar but actually reported in the Georgia District Court reports, which was a for lack of a more descriptive word, a HoChi cchi joint that had young ladies come in to dance for the customers.
Elizabeth K. Dorminey (00:27:36):
And the establishment had taken considerable pains to set up each young lady as her own corporation and had her fill out forms and paperwork to establish the, you know, I think exotic dancer was probably the s I c classification for that kind of work. And they had had them fill out all those paperworks and at the end of the day, the authorities were not impressed, and those women were considered employees and not independent contractors. And hence the management's idea that they could be paid pretty much just on tips alone was was not successful and the liability was considerable. Anyway, I can't I think we may have exhausted the amount of time we were advised to, to, to use for our opening remarks, and we'd be very happy to entertain any questions anyone might have at this point about any of these topics.
Thomas L. Walker (00:28:37):
Yeah, Besa, we had one question and one individual. If I have a 10 99 person set up a corporation and pay his corporation, well, let's get around the government trying to claim he has an employee. And I think you answered that when you were talking about the, the, the strip club example that they had gone to a lot of efforts to have each individual performer set themselves up as a corporation and that they were going to collect their tips, but that wasn't good enough under the wage and hour laws. Is that correct?
Elizabeth K. Dorminey (00:29:13):
Yes, that's right. And again, you know, there's a, there's a, maybe regrettable lack of bright lines here. In each of these cases, they, they will look at usually a seven to nine factor test, depending on which court you find yourself in front of and evaluate each one of those factors like, you know, how people are paid and where they work when, so on and so forth. The, the points that we've, that we've covered broadly here one of the advantages of, of counsel is that we can, we can look at the cases in the relevant courts and go down that list with an employer and decide either that they can arrange the relationship in such a manner that it will be more defensively one of an independent contractor, if that's what's sought after or work out an arrangement to consider the person an employee.
Elizabeth K. Dorminey (00:30:07):
And even as an employee, there are options when we get into the misclassification of whether people are salaried or hourly. There, there, there's more flexibility than you might immediately suspect in the wage and hour laws. But again, one of the important elements there is to be, to be anticipating what the government's rule or approach is going to be so that you can arrange things in advance to to, to meet the test. Because with many wage and hour cases, particularly now, you know, the wages have crept up. How much you pay somebody after you satisfy minimum wage really doesn't matter too much to the enforcers. It can matter a lot more how you pay them. And the bottom line may be more generous for you if you do it one way more for generous for the employee if you do it one way and yet result in liability for the employer. Whereas paying the employee less but in a conforming manner is going to be more advantageous for the employer and, and less for the employee.
Thomas L. Walker (00:31:21):
Lemme just jump back to what Betsy was saying. She was talking about the the club example and we talked about the wage an hour. And I, from a injury standpoint, from a worker's compensation standpoint, again, I mean, they're going to be considered employees unless, unless the club doesn't exert a lot of control. And you know, means that, that they can come when they want, they can leave when they want, they can, you know, dress however they want. They can, you know, comport themselves when they're there. You know, and most of the, these businesses, they don't do that. They assert a lot of of control over, you know, the hours, how many shifts a entertainer works, what, you know, what they do when they're there and they, you know, have to have certain rules to stay within the law.
Thomas L. Walker (00:32:18):
So tho those cases, those, at least in Georgia, I haven't seen any that have been successful as an independent contractor. So you know, the, I think the idea of setting up you know, peer your employees as tenant 99 individuals and corporations themselves, you're probably not going to get, you know, farther elsewhere. But there are certain situations where, you know, maybe you know, it, it would work if you are, are a general and you bring in other people to do work well, then you're gonna might be a statutory employer. So if, if you have a legitimate reason why you're having individuals as 10 99 and having them set their own corporations and if that individual that's set up as a corporation is also doing the same work for other companies, then maybe, but if they're just working for you they're, they're, they're probably gonna be considered employee and maybe a better example or law firms.
Thomas L. Walker (00:33:35):
You'll sometimes see law firms where you'll have multiple individual professional corporations made up in the law firm. And so you, but you might have you know, you could have a Thomas Leland Walker PC as a part of We Lawson pc. You know, you, you might do that for some taps purposes, but it's gonna still be considered an employer employer relationship. For the most part. We have a question here from a Dana J what about Labor Agency? You were directing their work, but they're not your employee. And that's an interesting question because there was a, a fairly recent case in the past year regarding works compensation, and it was a company that had hired a a a temp, a temp employee agency to provide their, their labor. And for, you know, usually when you, when you have temp agencies, they are they have workers' compensation that you, you hire them so that you, you know, don't have to get workers' compensation, so you don't have to do employee payroll, so you can avoid that.
Thomas L. Walker (00:34:50):
But in that particular situation, that temp agency, I believe didn't have coverage. And the Georgia can't remember is a court appeals case or Supreme Court case, they came out and said, you know, yeah, you're, you're, you're on the hook for this employer. You know, even though you hired this temp agency, they, you're considered a joint employer and you needed to have coverage, you know, four, you know, four of them, you're, they're under your coverage. And I, I don't remember all the law that that court had had stated, and I, I don't remember where it is if it's no longer going through more appeals, but it kind of changed the understanding of, of the having an, a temp agency. And the question was, well, what's the point of having a temp agency? And there's actually a, a code that specifically deals with temp agencies, but it was one where, you know, you, you, you really, if you're getting a company to do temp labor, labor, you route really ought to make sure that they're covered and they can have certificates of coverage and show that you do, cuz you might find yourself on the hook for it anyways
Elizabeth K. Dorminey (00:36:12):
That's very true. Tom, if I can, if I can add in here too, and particularly with respect to the wage and hour end of things, there have been great great many cases that have, that have found the two to be joint employers. Temp agencies are popular because they can mobilize a lot of you know, a lot of workers more quickly sometimes than a regular employer and streamline the process because they bring in folks who are, you know, ready, willing and able to do the job, but they're being managed and compensated through another vehicle that, that simplifies matters for the employer. But I will tell you that when, you know, when, when things, things become unpleasant, the the authorities are very commonly going to find that you're a joint employer. Particularly, for example, in a, in a poultry processing setting.
Elizabeth K. Dorminey (00:37:05):
If I have a temp agency that provides me with workers and has them available on short notice, the employer still can end up being held liable, not just for you know, actually the misclassification for independent contractor pay there is not such a big deal because usually the employer is compensating the temp agency with a lump sum. But when it comes to things like directing their employment, if the, you know, if the company's employee supervisory force is telling those workers what to do, the company is going to be found with all likelihood to be a joint employer. And again, I think I mentioned earlier in an E E O C setting, for example, we I have known of employers who said that they had a temp agency employee complained about harassment or discrimination on the job and they said, well, you know, that's not our problem cuz you're not our employee. Well think again because the E E O C will also regard the contracting employer as a joint employer for purposes of harassment and discrimination violations.
Thomas L. Walker (00:38:14):
So we have in our question here is there an ability to offer retirement benefits slash pension a retained independent contractor status? Betsy, do you have any thoughts on that?
Elizabeth K. Dorminey (00:38:27):
I, you know, if that question came to me, I'd ask Jim Hughes, because Jim Hughes is our our compensation guru. Normally you would be able to, I mean, you can pay anybody anything you like and you can make payments to them. If you wanna maintain the independent contractor thing, I think I'd really work closely with that person whom you're hiring with the worker to establish their own 401k plan. And you probably wouldn't necessarily get the same kind of deductions, but he'll get the deductions that are part of the i r s code there in deferred compensation. But that's, that's a little bit beyond my expertise, but I know it's within Jim Hughes's. And if, if you have a question about that for, for Jim, I'm sure he'd be able to answer it readily.
Thomas L. Walker (00:39:15):
Yeah, I think looking at it from a worker's compensation standpoint, it still goes back to how much control do you exert over the work product they they do. And if you're not, then you know, you can probably pay them how you want to. The prob the, the, the question I would have is that if you are that involved in, you know, that independent contractor's business, you know, with the retirement benefits and pension you know, are you really not that involved in controlling what they do? My my feeling is you, or my guess is that someone independent looking at it would probably conclude that if you were having such a detailed relationship with compensating them that you're probably more likely an employer than not. But I think it's, no,
Elizabeth K. Dorminey (00:40:13):
I think you're, I think you're right about that, Tom. And here's another aspect that we didn't really dwell on a great deal because it doesn't come up quite as much. But the it's the degree of economic dependence of the worker on the, on that employer. I mean, if, if, if employer X is the only person that that independent contractor is working for, they're going to be principally economically dependent on their, their earnings from that employer and therefore more likely to be found to be an employee If you know, in the bookkeeper, keep example, if if the bookkeeper worked for a dozen different businesses around town, then they're not so dependent on that person and they might much more likely be a bonafide independent contractor.
Thomas L. Walker (00:40:59):
Right. And it goes back to the
Elizabeth K. Dorminey (00:41:00):
Degree of, the degree of economic dependence is one of the factors that courts look at traditionally.
Thomas L. Walker (00:41:05):
And, and it goes back to the question we had about a corporation. If you set up an individual as your own corporation you know are are they gonna more gonna be concerned an independent contractor and you were economic dependence criteria or, or, you know, elements I think also, you know, applies you would apply on workers' compensation. That, again, if you have a person who's set up as a corporation and they're doing about 10 different other companies, you know, work for, then that's gonna look more like an independent contractor. But if they're only working for your company, if they're the, if you're the only, you know, general that they're doing work for, then you're probably more likely going to be going to be an employer. So I have another question here. What about psychology practices? Two questions. One, is it controlled to say that you have to follow ethical guidelines? An example contemporaneous documentation you complete with your notes within 24 hours. And two, can you ask them to work one evening but not specify which one? Thanks.
Elizabeth K. Dorminey (00:42:12):
That's a really good question, and if I could jump in there, requiring somebody to follow rules is not determinative and those would be professional rules that are imposed on the profession, presumably by some kind of a licensing authority at the statewide level and requiring that is not the kind of control that they're talking about. If, you know, if it's one night a week, I think, you know, you would, you would it, they would be more likely. I think you could set it up. It's the, it's it's closer to the arrangement that Tom discussed about the, the law firm being composed of a bunch of, of LLCs or, you know, or professional corporations. I think that you could have a psychology practice that is composed of a number of professional corporations that are the independent psychologists, and you can have a work schedule arrangement that that's worked out among them. But it's the degree of, of the degree of, of control would probably, you could arrange things such that it would be a bonafide independent contractor arrangement, particularly we're there's a licensed professional involved. What do you think, Tom?
Thomas L. Walker (00:43:34):
You know, I, I think you know, when you're talking about ethical guidelines that are put out by another organization that doesn't have the feeling of cons like of control by if you,
Elizabeth K. Dorminey (00:43:50):
It's not the employer who's controlling it. It's the, it's, it's the, it's the licensing body. This, this comes up in the joint employer arena actually too, because there were cases about fast food franchises where they said, well, you know, we have to, we have to follow the handbook. And courts have held, well no following the handbook is just an aspect of the franchise agreement and it's not exerting the kind of control that would allow you to make the national company a joint employer with the franchisee such that you'd be able to find them to be the employer.
Thomas L. Walker (00:44:22):
Yeah, I think if, I think if you're just holding the psychologist to the, the, the standards that are imposed by the state, then that doesn't have the same amount, like it sound like control. But if you have specific rules that you, you know, have them do about how they what they, what they can do with their patients, what they can't, when they can see them what areas you will get into, what areas you won't you know, it's it's not quite as clear cut as you might think. Can you ask,
Elizabeth K. Dorminey (00:45:06):
But you don't have to have a total absence of rules about conduct of the work in order to not be found to be directing and having somebody come in and telling 'em which wall to paint or to just, you know, just paint the place.
Thomas L. Walker (00:45:19):
Yeah, I mean, from a worker's conversation standpoint, I feel like if you have rules, the state board's going to be more likely to find that their employees and they're cover and they're covered. In terms of, you know, wage an hour, that might be a little bit different because even though, like I said, workers' compensation follows the same general rules of employment law do you do have the mandate from the general assembly that you liberally construe the, the law to find coverage? So, you know, they might be more willing to find coverage whereas a court, you know, might not be. And the the second part of that question, can you ask 'em to work one evening but not specify which one? Probably
Elizabeth K. Dorminey (00:46:09):
I think you could, you could work out a schedule even with a particular evening, but you're not telling them how to practice their psychology and how to conduct their therapy sessions. And that would be, I think where the, the, the degree of control would, would would be more decisive,
Thomas L. Walker (00:46:24):
Right? And if they, they pick the, the the night that they're gonna come in, then you know, that the, the more control that the independent contractor has about picking the night, I think the more it's gonna look like an independent contractor. You know, if you're, it's mandatory that they come in, you know, every Monday and you know, a certain time, then it's gonna look less like it. But if they can, you know, just tell you which you know, cuz you might, you might have a a you might have a business where you have a need for someone to be on call in the evening, you know, obviously if you have a a suicide prevention line, you know, you're gonna want to have people staffing at, at, at different hours. So you might want to have, you know, contractors who you know, will be the covering that period of time.
Thomas L. Walker (00:47:12):
And so I think you could probably say, yeah, we need to have somebody here, you know one, you know, we need to have you come several one night this, you know, every week because we have staff available every night of the week for people who are in crisis. So I I I, you know, I think you're probably gonna be okay on that from a workers' compensation standpoint. But you know, like Bessy said, there is no bright line where you, you know, check these boxes and they're an independent contractor or you check these and they're deaf and employee employee relationship. It's, you know, gonna be kind of on a, on a case by case basis.
Elizabeth K. Dorminey (00:47:54):
But certainly there, I think it would be highly desirable to have a professional incorporate themselves as, you know, Jane Doe, professional therapist, pc and to set up their own their own arrangements and insurance because that's, that would be personal or, you know, it would be, it would be something certainly to try to get on a more formal footing than otherwise if you wanted to protect the main organization from any you know, exposure from having an employee on the well, from the wage and hour perspective, certainly, although professionals generally are exempted from a lot of the hourly wage things, even minimum, minimum wage lawyers certainly aren't entitled to minimum wage. I can promise you that.
Thomas L. Walker (00:48:54):
Yeah. One, one thing, you know, that with psychology practice, you might actually prefer to have the people as employees as opposed to independent contractors. You know, I don't know you know, what the advantage would be to the, the, the company, but you know, the wor the thing about worker's compensation is that if somebody does get injured on the premises, that's a worker's compensation claim. It's not a liability claim. And with workers' compensation you have very you have maximums for disability, you have the the fee schedule for medical, you have some control over medical where you can require the person to go to one of the panel physicians. So you have a lot better ability to maintain or to manage your, your, your risk and maintain your, your, your, your limits, your exposure and costs with having the worker's compensation coverage, if you have an independent contractor who gets injured on the, on the property, you might have a premises liability claim, and you're not gonna have the benefit of the, the, the cap on lost income. You're not gonna have the ability to require that they go to panel physicians who are, are going to be more reasonable or conservative. You don't have to worry about pain and suffering. You don't have the, the loss of consortium claims, so,
Elizabeth K. Dorminey (00:50:39):
Well, the injuries from assault are a real thing, and that has been a problem,
Thomas L. Walker (00:50:43):
And Right. No, and exactly. And if you're, and having a psychology practice where there, you know, you are aware that there are people who might be a danger to the, the therapist, then you could be looking into even if, even if you have coverage for your premises, you might exceed your, your policy limits. And you know one of the big hitters that I, I worked with back in my directly farham days was a an attorney named Pete Log who's getting multimillion dollar verdicts and premises liability, you know, cases. So, you know, you can very easily exceed your coverage. You know, so it's, it, you know, it is not a bad thing to have people or employees and have the workers' compensation coverage just from a, a, a business standpoint. Additional thoughts? So you've had Betsy?
Elizabeth K. Dorminey (00:51:39):
No, I think it's it's, it's nice to have this opportunity to, to to share our our areas of expertise and find out the the, the overlaps and the, and the differences. We're in the business of giving people something to worry about, but we're also in the business of trying to help you plan around those exposures so that it minimizes your, your risk as an employer. So thanks to everybody who came to listen.
Thomas L. Walker (00:52:05):
Yeah, my only, my only thoughts are if you were trying to set up independent co if, if I always tell people you have to, you know, live for your life and not for your, your case. And you can take that same sort of mentality in, in, in this con context of the workers' compensation that you need to do, what's the, the best business, you know, practice for the company and not necessarily, you know, how can I avoid having to pay worker's compensation insurance? And if it makes sense for your company to have true independent contractors, then you know, I would, you know, then you certainly do that. And you know, it may work out if you have a, a injury and someone tries to bring a claim that may not. But what I would advise somebody is don't go and try to shoehorn everybody into being an independent contractor simply to avoid paying the workers' compensation coverage because you're, it's probably not gonna work and it's gonna cause a lot more troubles for you down the road. So you know, a little bit of, of, of, of pain now can, can prevent a whole lot of pain and suffering down in the future. So, you know, always do you know what's, what's best for the business, but don't try to create something there to avoid an obligation that you probably have to pay for anyways,
Elizabeth K. Dorminey (00:53:30):
The old ounce of prevention versus the pound of cure.
Thomas L. Walker (00:53:33):
Yeah. Let's see. It looks like we have a question is not simply about avoiding workers' comp, it's also about not paying half of their taxes. Well, you know, in that, I mean, in that case,
Elizabeth K. Dorminey (00:53:47):
Well, that gets into the IRS end that
Thomas L. Walker (00:53:50):
Gets the IRS question. Yeah.
Elizabeth K. Dorminey (00:53:52):
So, and the IRS has its own set of rules for determining whether people are employees or not. And they generally too, like everybody else, they will resolve things in favor of finding people to be employees
Thomas L. Walker (00:54:06):
Right. And, you know, we're,
Elizabeth K. Dorminey (00:54:08):
You're settling, settling the the liability later can be, can be pretty expensive if you get it wrong.
Thomas L. Walker (00:54:13):
Yeah. And, and you know, the, the, the thing that occurs to me, and you would certainly wanna talk to your account about this if you were looking, you know, to avoid having to pay taxes, but I believe that you do get to deduct a certain portion of the social security that you paid for your employer or for, for your employee. But the other other thing, and to keep in mind is that the I r s is now hiring 38,000 new agents. And you know, those 38,000 new agents they're gonna be going after the, the small employers, they're gonna be going after the ones that you know, the, the, the government feels are maybe not fulfilling their obligations. And I certainly wouldn't want to take the risk of audit and, you know, just to avoid paying half of the you know, because of trying to get out of paying a social security obligation.
Thomas L. Walker (00:55:12):
I think that the downside to the business you know, is, is much greater than the upside of, to, to, to avoid paying part of the those taxes. Let's see. Say I totally agree. I just wanted you all to mention that this is much more casa than worker's comp. Yeah. I mean, there are you know, other considerations as well. But like I, you know, like I've said, if it makes, if there's a legitimate purpose behind having it as opposed to avoiding, you know, a tax obligation or avoiding workers' compensation, then certainly do it. But if, if, if you go into and say, well, I don't want it to pay these taxes, I don't want to pay for this coverage. I'm gonna set this up to get a get around it, you're probably not going to because the government's gonna look at why do you have this relationship?
Thomas L. Walker (00:56:12):
I mean, in, in addition to all the different factor we we've set up out of control, they're also gonna look in there and say, well, what was the purpose behind this? What were they doing? Was there a reason, you know, why they they did, did it? And, you know, if it's to have flexibility where you can you know, throw off, you know, responsibility to somebody else then, you know, that might be a, a gentle reason. You know, we have a a cleaning crew. We don't wanna hire cleaner, you know, people to do, so we're gonna hire independent contractors to do the cleaning, but we're not gonna tell 'em, you know, we'll tell 'em when we won't be here and they can clean, but we're not gonna tell 'em how to do it, what to do. We're not gonna take that responsibility. Cause that's, we don't, we just don't wanna do it ourselves. You know, that's probably gonna get you, you're probably gonna be okay, but if you are doing something because you're simply trying to avoid something else, you're probably not gonna be successful, ultimately.
Elizabeth K. Dorminey (00:57:04):
Well, and we did have a case recently of an employer who thought that it was simply a matter of choice between treating employees as, as, you know, W2 type employees or independent contractors, and he let each new employee decide how he wanted to get paid. And a lot of those thought that the 10 99 was a preferable approach, because that's more money in my pocket now, and I don't have to have those pesky withholdings. Well, it, it's not going to end well with that employer because it's not simply a matter of choice about how you set things up. If you meet the criteria for having an employee, then you need to treat them accordingly.
Thomas L. Walker (00:57:47):
If you have someone who truly meets the criteria of an independent contractor, does it make more of a gray area to offer health insurance? You know, I think it goes back to the question about the retirement benefits that, you know, yeah, it's probably gonna make it look more like they're actually an employee, but it's not set in stone because there are no bright line tests here. You know, how much control do you have over the employee? I mean, be Betty, Betsy, what are your thoughts?
Elizabeth K. Dorminey (00:58:27):
Well, I think if that's the desire to end, you'd be better off just giving the person some additional compensation and having them get their own health insurance, because it is going to muddy the waters considerably. If you have them on a company health insurance plan, it's going to make them look a whole lot more like an employee. And then, you know, if you haven't been paying the, the employer's portion of withholdings and making the payments of, of the amounts withheld from the employee's pay it's, it's gonna, it's gonna get it'll get messy. It's hard to buy insurance on the, on the open market, but but I think you'd be better off giving them a compensation or a subsidy rather than putting them on the company plan.
Thomas L. Walker (00:59:12):
Yeah. I think that if
Elizabeth K. Dorminey (00:59:13):
You wanna put 'em on the company plan, just bite the bullet and treat 'em like employees, you'd be much safer.
Thomas L. Walker (00:59:19):
Yeah. Yeah. And that, yeah, I agree. I, like I said, sometimes, you know, there is a desire to have 'em be independent contractors, but the question is, why are you doing that? If it's to avoid some, another obligation then I, and I apologize. I'm, I'm working from home. I've been home this entire week with COVID and that's a very grouchy black lab. You hear barking in the background <laugh>. But yeah, I mean, like I said, it always depend. It depends on, you know, why are you doing it? And if you have the health insurance, it's gonna muddy, certainly muddy the waters. See here what if you ask an independent contractor to work a minimum number of hours a week, but you don't tell them when to work those hours? Just a minimum from a worker's compensation perspective you know, I think it's, you're probably gonna look more like you're controlling them.
Thomas L. Walker (01:00:24):
You know, the, the question would be, you know, if I were, as a worker's compensation judge, my question would be, why do you care about the hours that they work or the number of hours they work, if they're doing the job, if they're getting the job done. You know, if, if you are requiring a certain number of hours, then you know, like, like what a good example would be. You know, you hire someone to replace your H V A system you're not gonna tell that H V A C, you know, contractor I want my system replaced, but I also want you to spend at least 15 hours doing it. You know, your, your question's gonna be your, your, you're directive to the H V A C contractor is gonna be, I want my assistant replaced, and I don't care how much it takes, and if you can do it less time, I'll be even happier. And I think that's the, the same sort of question that a judge's gonna have. It's like, well, if they're filling in a contractor, don't you just care about the end result and not how much time they spent doing it? That I, I don't
Elizabeth K. Dorminey (01:01:30):
Know. Well, and con conversely too, I mean, look at it from the other perspective. If the idea is to have somebody providing coverage of some sort or being present for a certain number of hours every week, then that looks a lot more like an employee kind of arrangement than an independent contractor kind of arrangement, which is usually, as Tom says about getting the job done, the cleaner, you know, if you can clean the place in five hours, great. If it only takes you three even better for you because I'm playing paying you x to clean and the bookkeeper and those kinds of, of peripheral activities. But if it's, if it's an hourly presence requirement, it looks a lot more like the real essence of what your business is about rather than something that's truly an independent contractor kind of arrangement.
Thomas L. Walker (01:02:20):
Yeah. Let's see here. Oh, well, we don't have a question. We just have a thank you from Dr. Becky beat New York. Thank you so much for offering this workshop and your time. Well, you're welcome. We hope you enjoyed it and we're glad that you were able to attend Our pleasure.
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