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Webinar: Employee Misclassification and Overtime Issues

When a Wage Hour Investigator darkens your door, it is not the right time to decide whether you should be paying overtime and whether you are doing so. This webinar explores the most common exemptions and independent contractor rules.

Presented by J. Larry Stine & Les A. Schneider.

larry stine les schneider

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Webinar Transcription

Les A. Schneider (00:00):
Well, Larry good afternoon. We're here today. And we're here to discuss the issue that probably has vexed employers and lawyers and for an awfully long time. And that is whether or not somebody who is working for you is an independent contractor or an employee. And we wish we could end this in about a minute and give you a fast, quick answer. But because of the way the law has been set up among so much analysis, we simply cannot. So Larry, let's start out and basically indicate that you and I have talked about this for years and years. I guess if we put together our almost a hundred years of practice, we constantly have this issue come up time and time again. The, the biggest problem I think that the two of us see, and I'll ask you to comment on, is the fact that there is no one definition that encompasses who's an employee and who's an independent contractor for every existing law that affects that issue. Would you agree with that?

J. Larry Stine (01:03):
Yeah, I would, I would agree with that. And that's part of the problem is when you get a question, Hey, is this person an employer? Dependen a contractor from our point of view? Well, our next question is, for what purpose are you asking that question? Because there are multiple definitions, state and federal and the federal definitions vary based upon the statutes so that you end up with a tremendous amount of variation on it. Depending on what it is. Probably the most strict definition is the test out. The California is probably the most strict and probably the most lenient is the common law definition of employers that we used and some of the other federal statutes.

Les A. Schneider (01:52):
So let's, let's look at it this way. Obviously somebody comes to work for somebody else and the first day or days of employment, the question is, are you gonna treat this person like an employee or are you gonna treat 'em like an independent contractor? And usually the first forms that somebody is filling out relates to taxes, correct. And relates to the i r s. And as you in the law, the i r s has what they call a 20 factor test to determine whether somebody's an independent contractor or an employee. And I'll quickly read some of the factors that the IRS uses on this 20 factor test. First one is whether the company instruc or directs the worker regarding when, where, and how to do the work. Whether the company trains the individual, whether the individual's integrated into the business operation of the company, whether the services must be provided by a specific person or whether the individual involved can hire other people to perform the work work.

Les A. Schneider (02:59):
Whether the, whether there is a continuing relationship between the parties or whether this is just a one shot assignment. Whether the, whether the business sets the hours of work for the in for the individual, whether the individual is required to work full-time on the project, whether the individual is required to work on the company's premises, especially if the work is of a nature that it could be done elsewhere. Whether the company sets the order of performance, whether the individuals required to submit regular reports to the employer, to the employer, whether the individuals paid in increments of time hours was worked or commission, or whether it's a flat fee. Whether the company pays the individual's expenses, whether the company supplies tool supplies and materials to the individual. Whether the individual has a significant investment in the facilities, in the equipment that's going to be used as if they're providing, whether they're providing their own tools.

Les A. Schneider (04:01):
For instance, whether the individual has financial risk, a way to earn profit, or is there a risk of losing money on the particular work that's to be performed. Whether the individual is required to work exclusively for the company, whether the individual offers their services to the general public. Whether the company has the right to discharge the individual without incurring libi liability, regardless of whether the individual is performing an employee can be terminated without liability. A contractor cannot. Whether the individual has the right to quit without incurring liability, an employee can quit without liability, a contractor cannot. So those are the type, some of the factors that we utilize, that the i r s utilizes in determining whether or not they are going to have an individual be deemed to be an employee or an independent contractor. And now Larry, if somebody's an employee, obviously he's going, he or she is gonna have withholding social security monies taken out of their check where an employee, where an independent contractor is gonna receive a gross amount of money and he or she will be responsible for their taxes and other liabilities. So that being said the IRS probably has the test with the most factors. Correct. but then we get into the area of unemployment compensation or workers comp. Right. And I guess my question to you, is it possible that somebody could be an employee for IRS purposes, have an exemption for unemployment tax purposes, whether they're not deemed to be an employee or they're exempt from unemployment tax and yet for worker's comp, they may de be deemed to be an employee. How would you comment on that? Well, I, I

J. Larry Stine (05:56):
Think the more likely scenario is that they would be covered on a worker's comp and unemployment because the tests are harder to be an independent contractor than they are under the IRS standard. So when you look at it, I wouldn't be surprised if we had some people, and, and we frankly run into it before, where we had been dealing with unemployment on the unemployment tax cases, where I think they meet the definition of an independent contractor, the IRS purposes. But the Department of Labor has ruled that their employees for the purposes of unemployment tasks, and I have dealt with other cases in which wage hour has come in, which has a pretty tough definition to get excluded and treated them as employees for purposes of wage and hour, but treat them as independent contractors and give 'em a 10 99 for tax purposes. So there are circumstances where you can do that. Now the problem with dealing with the IRS in my opinion, is of all the things, if you mess up the IRS can be the one that bites you the worst

Les A. Schneider (07:14):
In terms of liability.

J. Larry Stine (07:15):
In terms of liability. Because what happens is, as long as the people you are giving the 10 99 are paying their social security and the full social security, the 14% and paying their taxes, IRS doesn't care.

Les A. Schneider (07:29):

J. Larry Stine (07:30):
Where RS Cares is when you got some very low income people and they're not reporting their taxes, they're not paying any of their social security, the IRS is going after them, and all of a sudden it leads back to the employer. I've had one where that happened to one of our clients and he had a crew of like 12, 14 people and he had a liability of a half a million dollars. Cause none of those people paid the taxes. None of 'em paid the Social security. They went back to him penalties interest and had to pay all their taxes and all their social security. So if you make a mistake, an IRS comes at you and your employees don't pay your their taxes, that can be the most severe consequence of it. Wage arrow can be pretty severe. If you're working very, very hard and very long

Les A. Schneider (08:25):
And having a lot of

J. Larry Stine (08:27):
Overtime and having a lot of overtime, then you can run up some very substantial liability also. Right?

Les A. Schneider (08:31):
But this is not to make it clear, this is not a situation where an employer can ask a, a individual, well, would you like to be an employee or would you like to be an independent contractor?

J. Larry Stine (08:43):
I client do that. Recently I was talking to one of my smaller clients and I said, well, how do you handle the W2 s the 10 90 nines? Says, well, I asked them, I said, you do what?

Les A. Schneider (08:54):

J. Larry Stine (08:54):
He says, I asked them, do you, you wanna be A1 99 or a w2? Now my surprise, about half of 'em actually selected to be a W2 and have the taxes taken out. Half went 10 99. The reason I'm surprised is most of the time I've been experiencing

Les A. Schneider (09:07):
It would be the

J. Larry Stine (09:08):
Opposite. They want take the 10 99 cause they can take the most money and they don't want to pay it. Right? But the people doing the W2 were paying their taxes and wanted withheld and their mindset is, Hey, I'm looking forward to my tax return in April

Les A. Schneider (09:23):
And don't want to be caught with a big liability.

J. Larry Stine (09:26):
Wanna be caught with a big liability and I'm not allow to pay Social Security.

Les A. Schneider (09:29):
And wouldn't it also be true, Larry, that that individuals have gotten a little more savvy and over the years. And the fact of the matter is if they are an employee and the employer does have benefit plans, whether it's a health insurance plan, whether it's a retirement plan or any other type of benefit, then they could very well be a part of those plans where if they take the independent contractor route, normally the employer is gonna take to view you. Well, you're an independent contractor, you're not eligible for those plans. So there's a lot of factors that people use, but clearly this is just not a matter of the employee preference winning the day and it's not gonna provide the employer with any kind of defense.

J. Larry Stine (10:09):
Now, while I've been pointing out, I had a small client do it, and I understand the lack of sophistication cause he was very unsophisticated. One of the biggest companies in the United States got caught in a pension issue with Microsoft, right? Microsoft was having a, you'd go down the hallway, they'd be engineers, software engineers, some were independent contractors, some were employees, some were independent contractors, some our employees. And the ones where the employees were getting the benefits and the ones that were independent contractors weren't. And they were up and down the hall

Les A. Schneider (10:43):
Working on the same project, doing the same type of work. And then there's the other issue, which we have encountered over the years, where a large employer will basically have somebody come to work for them, have the, that individual forms in a corporation or an LLC or some other type of, of legal structure,

J. Larry Stine (11:10):

Les A. Schneider (11:10):
And they pay the company, the LLC or the corporation a check in the hopes that the I r s will look at it and say, okay, that corporation is, is employing that individual, not the P person, who's not the company that's actually giving them the work. And that those have varied results and can also be a problem. And I think if I remember years back, you and I dealt with the transportation company into the example you talked about mm-hmm. <Affirmative>, where a number of the individuals got 10 90 nines, but wage and error came in. And when they evaluated the control and all the factors that they used, they felt that these people, people were eligible for overtime if they worked over 40. And in our particular case, in that case, I remember we were able to actually point out that those particular employees, I'm sorry, those particular individuals were drivers and we were able to fit those drivers into an exemption from overtime.

Les A. Schneider (12:14):
But it didn't eliminate the fact that as far as the wage and hour definition was, they did qualify as employees. And then the question is then the overtime laws would apply to them unless there was an exemption from overtime or minimum wage that we could fit into. So an employer has to be sensitive to the fact that even if, as you say, the IRS may find them to be 10 99 independent contractors, if the work is such, and if the equipment and everything is provided by the employer, they could very well be subject to the wage hour law.

J. Larry Stine (12:52):
They, they could, now that you're pointing out the drivers is a kind of a little statute called the Surface Transportation Assistance Act. It treats them differently. And this is something you've gotta be careful with. Not all statutes kind of go to employee. The surface Transportation Systems Act covers employee drivers and then what we call owner operators, which oftentimes are independent contractors cuz they own a rig that's worth a hundred thousand dollars they bought it to own, they're bringing in a substantial amount of money and they can reject or accept loads and probably under the common law definition would not be employees. So they,

Les A. Schneider (13:35):
For the purposes of that act,

J. Larry Stine (13:37):
For the purpose of that act. So what Congress did in that case is goes, we don't care. We don't care if you're an employer or an independent contractor. If they're driving for you, either as a employee driver or an owner operator independent contractor, these rules apply. So there are times when it doesn't matter and you have to look at the statutes

Les A. Schneider (13:57):
And following that logic that will further, let's take the whole area of workers' comp. Obviously an employer risks a a great deal of liability if they have somebody working for them and that person does not have workers' comp coverage. Right. And that person gets injured. Right. they, they, and that can also be a big problem because there's serious penalties and financial liability for the medical and the disability injuries that could occur from that accident. We have had experience that sometimes there are certain employers who, even though they have bonafide independent contractors, actually buy workers comp for those independent contractors. And it's a separate category for those individuals under the employer's workers comp policy. In addition, there is other coverage and in, in our case that you and I dealt with, there was an, they had occupational injury coverage. Right. Which largely mirrored workers' comp coverage, which shielded the employer from other liability. So whether or not people are independent contractors and work or work or employees, it is important that all of that being fed figured out upfront so that the coverage is covered one way or the other. Or there's something in the independent contractor employer agreement that talks about what's gonna happen in the event of injury and where that liability

J. Larry Stine (15:35):
Lies true. Because one of the things about the worker's comp, the defen, that there's a great benefit to the employers is the exclusivity

Les A. Schneider (15:45):
Doctor on the shielding them from personal liability and having a set benefit that would occur whether it's a death benefit or medical benefits or a disability benefit.

J. Larry Stine (15:56):
Yeah. I I may, I may point out it's not so it's not something we can talk about in a little bit, but the exclusivity doctrine varies from state to state to state. Georgia probably mean the most comprehensive Right. Exclusivity state union, other states have big holes you can drive tractor trailers. Our neighboring state, Alabama has a whole so big in its worker's comp exclusivity. You take a tractor trailer and run it through it.

Les A. Schneider (16:22):
Right. But in Georgia's you pointed out it gives employers tremendous protection from liability. Yes. Because you know, if there is a death, if there is a serious accident with permanent disability and payments that are gonna be made, the employer doesn't get sued for that. There may be a manu, there may be somebody else who gets sued, but the employer has that shield of liability protection because he has paid the premium and the benefits will be paid to that individual.

J. Larry Stine (16:53):
Yeah. Drawing that in the case I've been working on with her at six fatalities when I was working with the company, they had workers' comp liability for the fatalities and it's a finite money of about $200,000 depending on some circumstances. Whereas they sued if somebody in product liability and five plaintiffs got me think around 60 million. So there's a huge difference between the potential liability between workers' comp and then tort liability. So Right. When you're looking at it, sometimes you want have them be employee not independent contractors

Les A. Schneider (17:29):
Benefit. And that is probably one of the main things you all should take back from this conversation. That it's, it's not always, you always want 'em to be one or the other. You may want to be careful about how anticipate how these matters are gonna come out if somebody is hurt on the job or if somebody is let go, are they eligible for unemployment? Is that gonna get you in trouble in case of an audit and things like that. Larry, let's talk a little bit about another federal law, the National Labor Relations Act. And obviously that's the act that allows employees to join or not to join a union. It affects employees but it doesn't cover independent contractors under the N L R A. But, but at the end, on the other hand, as you and I have talked about this new gig economy, whether you're an Uber driver or a Lyft driver or you do some other type of work that's part of the gig economy, where does all that fall in this thing? And aren't there a lot of states that have created hybrid categories for people to fall into?

J. Larry Stine (18:37):
Right. And some of them have very specifically, California for example, passed a law that they're not employees for Uber and Lyft and scholars. Tremendous amount of controversy in the state. The problem we've got is we've really, as the economy has developed, we've got employees, we've got independent contractors, and then we have the word we use gig employees. And basically what we're trying to figure out is now I've got a round p employees, I've got a square peg for employer, for independent contractors, I got it poor, I'm trying to hammer men. And then all of a sudden they hand us a triangular piece and there's nothing but circles and squares on them. Neither law seems to fit easily. And as we've talked about before, it, to me, it really needs to be the legislative figuring out how they wanna handle these people. Because honestly, when you look at 'em, they meet a lot of definitions depending on how much investment. Like once you have your own car, now it tends to kinda sway. And nowadays you see people with Uber and Lyft the same car. So they sometimes they do Uber, sometimes they do Lyfts.

Les A. Schneider (19:48):
And that's a very good point Larry. And that let's kind of move from that. Take that point and go a little further. Let's say you have somebody who owns their own vehicle. They can reject or accept as assign assignments as you talked about, right? But they're forced to sign a restrictive covenant that says they are not going to drive for anybody else but Uber or but Lyft. How does that affect their status as an employee or an independent contractor? All

J. Larry Stine (20:22):
I can tell you is if I was trying to represent 'em, they would gimme a massive hard firm, right? To have a restrictive covenant. Cuz I'm trying to sit here saying they're independent contractors and they're running their own business. But I put a provision in the contract that says, but you can't work for anybody else. The problem is, even when you look at the common def law definition, that type of person is somebody offering their services to multiple people. And when you put a provision in, it says you can only provide services to me, I think a lot of courts are gonna go, when you put that restricted covenant in, they're not independent contractors. I don't care if they have a tractor or trailer, I don't care if they have a car that's just too much control over the meth. The methods of me of reduction.

J. Larry Stine (21:07):
And that the common law definition tends to be whether you control the means and methods of the job, right? That tends to be the common law. And in the more liberal ones, it tend to be, are you economically dependent upon them? The employer. The employer. And so they're two very different, do I control the means and methods under the common law and under the fair standards, thera, are they economically dependent upon you? And that's a very different question. And can, can you end up with a very different answer depending on whether I'm using the common law question, I'm using the question for the same, the same person.

Les A. Schneider (21:46):
So we would basically take one of our black letter rules would be if you're gonna ask somebody to have them work with you or for you and you're gonna require them to have a covenant, not to compete covenant, not to solicit any kind of restrictive covenant like that, then you are really tilting the scales more in favor of them being an employee. At the end of the day, it's gonna be a factor that's gonna stick, stick its ugly head out at you and it may not be worth the risk. If you want the restrictive covenant, then you're probably accepting the fact that that individual's gonna be your employee

J. Larry Stine (22:24):
<Laugh>. Yeah. I off Yeah, you, you you put those restricted governances in and you, you really are reducing the chances of them being in contractor to, to unacceptable levels of risk. Right? And the problem is obviously one of the things that we, that's so important about independent contractors and employees is if you make them independent contractors and they turn out to be employees. So when you start making those payments to them for say, back wages on Israeli standards Act, you haven't budgeted, you haven't put it in your prices and it, where's gonna come out of it, it's going to come out of the bottom line's coming straight outta your profit. And so it can be a very disastrous this decision. So sometimes you better look at it ahead of time and if it's close, you may wanna think about making them employees. Cause you can price your business, you can plan for it.

J. Larry Stine (23:21):
And for example, on the fairly standards that if I manage manage their overtime, I can certainly minimize any overtime liability. But if I'm an independent contractor and I'm not paying any attention to it, all of a sudden it comes back. And where I could have had some employees, three employees doing 120 hours worth at 40, 40 and 40, I had two independent contractors doing it, it at 60 60. And all of a sudden I've got 40 hours of overtime where if I had knowledge ahead of time, I would've had virtually no liability and understood I had a massive no liability.

Les A. Schneider (23:56):
Right. So let's go let us point out also to everybody that recently the state of Georgia came up with a new regulation as to this in as to this issue of whether or not somebody is an employee or independent contractor for purposes of unemployment compensation. I'll read this Larry and ask you to respond to it. I know that one of the reasons I believe this was done is to capture more people for unemployment tax because that keeps the trust fund healthier. Right? And it tries to eliminate any competitive disadvantage that one employer would have if he's not following the rules as opposed to somebody who wants to follow the rules. But it says as follows, such individual has been and will continue to be free from controller direction over the pro performance of such services, both under the individual contract of service and in fact is demonstrated by, by whether the individual one is not prohibited from working for other companies or holding other employment.

Les A. Schneider (25:02):
Contemporaneously Two is free to accept or reject work assignments without consequence. Three is not prescribed minimum hours to work or in the case of sales does not have a minimum number of orders to be obtained. Four has the discretion to set his or her own schedule. Five receives only minimum instruction and no direct oversight of supervision regarding the services to be performed such as the location where the services are to be performed and any requested deadline. Six, when applicable has no territorial or geographic restrictions. And seven is not required to perform, behave, or act. Or alternatively is compelled to perform behavior act in a manner related to the performance of services for wages, which is determined by the commissioner to deter, to demonstrate employment in accordance with this code section and such rules and regulations that the commissioner prescribed. And two such individual is customarily engaged in an independently established trade, occupation, profession or business. So when we look at that definition, how does, what does that do to most employers in Georgia?

J. Larry Stine (26:19):
Well, the first part sounds pretty traditional,

Les A. Schneider (26:22):

J. Larry Stine (26:23):
But when you get to that last little kick in which it says you've gotta be in a normal kind of occupation, that becomes a highly restrictive limitation because now they're looking at their overall business and saying, okay, is this normally something that's done by independent contractor? Something? So for example, you, you have an attorney work for you, eh, attorneys do it all the time. But if I have somebody who's a carpenter,

Les A. Schneider (26:50):
Not so

J. Larry Stine (26:51):
Much, not so much.

Les A. Schneider (26:52):
So the attorney that's working for you, if he's working for you and nobody else,

J. Larry Stine (26:57):

Les A. Schneider (26:58):
If he's not free to take other work, it's gonna push it more toward that person being employee,

J. Larry Stine (27:04):
Employee I, he's gonna be inside council instead of outside council. Right. So to speak. But it's that last little kicker is the thing that really kicks it. So what it's looking for is like we see things like a lot of businesses that want to have the individual worker fees be independent contractors, but that's what they

Les A. Schneider (27:23):
Do. So if a restaurant decided they were gonna take their waitstaff and make 'em all independent contractors, that would make it under that last part of the definition,

J. Larry Stine (27:33):
It would not make it under the last piece that definition. And it really makes it a much tighter. And of course the simple fact that matter is when you get the tax and governmental authorities, they want you to be employees,

Les A. Schneider (27:46):
Right? They

J. Larry Stine (27:47):
Don't like you to be independent contractors cause they don't get their

Les A. Schneider (27:49):
Cut. Right. And, and again you know, the purpose of unemployment is to try to help people when they have in instances of involuntary unemployment through no fault to their own. And again, by changing this regulation to expand the number of people that would be an employee under the act, they are collecting more unemployment tax. And although the unemployment tax I think is only based on the first maybe 11,000 or 11 five of wages that the employee that the individual was earning, at the end of the day, it's still collecting more money for the state, right? Which is allowing the trust funds to be healthier. And that's one of the rationales.

J. Larry Stine (28:34):
And it's not always I rational for the government to want more money, but it, there is a tendency if I'm head of the agency and I'm taxing, I want expand my, my base. And was again, that his reason. We're beginning to see legislation that does that. But we still need legislation, in my opinion, to help define these gigs that give them whatever benefits or whatever taxes the state wants to do. I think they need to do it in the statutory basis. They have a third category. We're literally developing in this country, three categories of work of workers, employees, traditional independent contractor in the the gig.

Les A. Schneider (29:14):
And then you have certain states, although Georgia has not been one of them, that in essence recognizes somebody's an independent contractor, but allows them to organize you know, against an employer, not under the federal law, but under a state law and guarantees them certain amount of benefits, guarantees them a certain wage rate. Right? And again, Georgia has not taken that step and obviously in many employers eyes, that's the right step to take. But your point is, is that the gig workers are just hard to pigeonhole into one category or the other. So you are, as an employer who's trying to do the right thing, you're having difficulty really finding the right slot, right? Because let's say the let's use the Uber driver again. If they have their own car, pay for their own fuel, pay for their own repairs, they are having that profitable loss you know, potential.

Les A. Schneider (30:19):
And that makes sense. Makes them look like an independent contractor, right? On the other hand, if they are, you know, caught into a network where they get their money, not from the passenger, but from the company some of those factors may mitigate against right. Independent contractor relationship. The fact that they, if they, and that has changed. I know at one point I believe a company like Uber would, would say, you cannot work for anybody but us in this fashion. Correct. Now they have let go of that. I think it's because of two factors. Number one, they're having trouble getting enough drivers. And number two, I think there's been somewhat of a palace revolt of people saying, well, if I can't drive somebody else, I need to make a living. I can't make any, I'm not getting enough rides from you. I've gotta go out from go out and work with somebody else. And then of course there's the problem about somebody like that working off the app and they're trying to do a ride on their own and there's insurance concerns and all of that.

J. Larry Stine (31:26):
Yeah. They, yeah, you do it off the app and then then you're, you're not taxi driver and you're not covered. Just some particular issues. I I, I had a fascinating conversation with new Uber driver recently and, and was chatting with him and he says, well, you know, I, he says, I'm feeling this like a business. I'm said, I'm driving, I've got it managed. And I said, really? He says, yeah. He says, I'm making a hundred thousand dollars a year and I'm about dropped outta the back of the chair. But he really was figuring out how to do the job. And part of the thing with Uber is some of them are like him full-time trying to make a living on it. A lot of 'em are people who are just trying to make some

Les A. Schneider (32:02):
Part-Time, part-time Monday, part-time work, part-time money. Yeah.

J. Larry Stine (32:06):
Mm-Hmm. <Affirmative> and ok. And it, the funny thing is gig works for both those people, but we need to figure out, it, it, it, it, it's can be very helpful for both the employer and the gig worker. But we gotta figure out there way right

Les A. Schneider (32:21):
Now, Larry, there's been a lot of talk about obviously people coming into this country either legally or illegally and, you know, being a foreign worker, right? There's obviously programs set up to lawfully come in from another country through a foreign worker program being able to work for the employer in question. But in those cases, it's clear that those workers are employees, they're not independent

J. Larry Stine (32:48):
Contractors, right? So for, for example, we have a program for temporary workers coming work in agriculture called H two A workers. They come up and they work for farmers, some other type of farmers nurseries. And they are clearly employees, wage an hour hazard enforcement. And then H two B, which is non agriculture temporary. And for some bizarre reason, and I never have figured this out, the Congress has decided that H two B workers pay Social security H two grade workers who are in the country and back don't now why haven't aclu, but they're both employees that clearly employs and they impose Department of Labor imposes all sorts of requirements to handle those. And they're, you cannot have an independent contractor. And the interesting thing is, if I've got people working on the farm doing the same thing, they've got it set up. So they're considered corresponding employees by doing the same duties. So if I've got a bunch of people out there that are independent contractors from somebody else doing the same thing, the H two A workers, the H two B workers Department of Labor takes this position, they're corresponding employees and they gotta be paid the same exact benefits as the H two A and HB workers.

Les A. Schneider (34:14):
And in this day and age where we have jobs searching for people most, most of the employer community would want to expand these foreign worker programs want to do it lawfully. Oh yeah. But there are right now restrictions on the number of workers who could come in under these programs. Isn't that true?

J. Larry Stine (34:33):
Right. Basically agriculture, which is basically farmers don't have a cap, but it's a very narrow portion of the economy. The rest of the economy is relying on things like H two B, temporary, seasonal, non-ag

Les A. Schneider (34:48):
Agriculture and that's limited.

J. Larry Stine (34:50):
Yeah. 63,000 visas. Right? It's a drop

Les A. Schneider (34:54):
In a bucket bucket. But that would be something that perhaps in this day and age, the hotel industry, the restaurant industry, they would all like to be able to have access to more folks, right. They who are willing to do that. But obviously that has not worked through the administrative process or the congressional process to be able to expand those

J. Larry Stine (35:15):
Numbers. Right. some users of the HTB workers are seasonal hotels that have seasons. Right. And restaurants. Some of them that have seasons they can use. The HTB problem is they can't do it. And, and we've got a lot of experience dealing with H two and htb workers and it's interesting because they don't have to immigrate. They just come up to the United States. They go get their work, they make a lot of money, they take it back home, back to where they really wanna be their home. Cause they're given the opportunity to come to the United States and make American money, which is when you go back home,

Les A. Schneider (35:50):
It's worth a

J. Larry Stine (35:51):
Lot more. Gosh, it's worth so much more.

Les A. Schneider (35:53):
And of course, we're not gonna go the political route of the pros and the cons of having so many people come across the border illegally. And whether or not, if these programs were set up and the numbers were larger, would that, would that deter people from wanting to come in illegally if they could do something like this? But the real issue is there needs to be some sort of resolution to address the fact that we are now in a situation in this country where we have jobs chasing people. Right. As opposed to people chasing jobs.

J. Larry Stine (36:27):
Well, in case don't know, less an hour, not on the same political spectrum, but we agree on this 100%. It's it the politics is getting in the way of solving a problem that we think rational people could resolve. But we are just attorneys. We don't get to do anything about politics. But we do think that an expanded each two a type visa would be something very effective. And with the enforcement mechanisms in place, they're there to help design already designed to help the people coming up not be exploited by having them work for sub minimum wages. And also it's set up so that they're not taking jobs away from Americans. Or if the Americans do it, they gotta pay 'em the same rates, which tend to be much more substantial with minimum wage.

Les A. Schneider (37:18):
And that's the benchmark of the program, that there has to be demonstrated a labor shortage. It is in that particular job category in order for a company to be able to fill those positions.

J. Larry Stine (37:30):
I, I think one reason the H two A is unlimited is it's been demonstrated I think pretty convincingly to federal government.

Les A. Schneider (37:36):
There's always a labor shortage. That's the agriculture.

J. Larry Stine (37:40):
Well, I will give you an example. In one case, we had 200 people come in domestic to apply for the work. The number of the 200 they completed the seize actually the number of the 200 who completed more than two weeks of the harvest mm-hmm. <Affirmative> was one, one person out. Because it's a hard,

Les A. Schneider (37:58):
It's hard work.

J. Larry Stine (37:59):
It's hard, hard work. The interesting thing though is it does actually pay during the harvest part very well. You're working very hard in very long hours, but they're, a lot of these workers make over a thousand dollars a week and doing that. And that's the very substantial money to even buying our standards. But by standards where they're coming from is astronomical money. But yeah, it, it, it's something that has, if if something like that was done, it'd have to be monitored carefully and have that type of system. But having it taking the cap off I think would kind of help, help help us on some of these issues we're

Les A. Schneider (38:38):
Developing. Well, Larry, let's pivot a little bit and talk about one of the other areas of the law as the one that's regulated by the equal opportunity commission occu opportunity commission. And that deals with discrimination based on various factors. And again, an individual who is an employee is covered by that law. Correct. Whereas somebody who's an independent contractor is not.

J. Larry Stine (39:05):
That is correct.

Les A. Schneider (39:07):
And again, do we, how does the definition of an employee under the E o C law compared to some of these other laws that we've talked about, both federal and state?

J. Larry Stine (39:18):
Well, what happened is the Supreme Court in a decision called Nationwide Mutual Insurance Company versus Darden, looked at these federal statutes that really don't have a definition of employee. And they basically said as if Congress doesn't give a definition of employee, we're going to use the common law definition. And

Les A. Schneider (39:40):
Why don't you share that with us in, in terms of what that definition is. And again, this definition would be applied in the event that the statute that is governing the conduct and determining whether somebody's an employed or independent contractor, if there is no definition of employee, this is the definition that's

J. Larry Stine (40:00):
Utilized. Right. Then this is a, a quote from Nationwide Mutual Insurance Company from Dear Lord, was it 1993 or 2 19 92, in determining whether a hired party is an employee under common law of agency, we consider the hiring party's right to control the manner and means by which the product is accomplished. And remember I talked about that. That means manner and means is the driving force. Among the other factors relevant to this inquiry are the skills required, the sources of the instrumentalities and tools, the location of the work, the duration of the relationship between the parties, whether the hiring party has the right to assign additional product for projects to the hired party. The extent of the hired party's discretion over when and how long to work the method of payment, the hired party's role in hiring and paying assistance, whether the work is part of the regular business of the hiring party, where the hiring party is in business, the provisions of employee benefits and the tax treatments of the hired party. But the critical criteria of the fact that everything looks at it is whether they are controlling the manner and means by which they accomplished their job.

Les A. Schneider (41:16):
So at the end of the day, when we deal with this issue, everybody likes fast and quick answers mm-hmm. <Affirmative>, and you know that the instant analysis doesn't always work, but clearly the element of control that you exercise over the individual is going to be a very, very significant factor. Sure. In determining that independent contractor versus employee status. Beyond the issue of not having to do withholding and trying to save money on unemployment tax or workers' comp premiums or things like that, what is you see as the driving force behind an employer's decision of what to do?

J. Larry Stine (42:01):
Well, some sometimes on the independent contractor is driven by a couple of things. And, and oddly enough, sometimes by with the employees, right? Because frankly, when you think about it, some people who would otherwise be employees but prefer not to have any, just get a gross check. Cuz we all know how much money our check has shrunk at the end of the day when we get our paycheck. So there's some of that going on and obviously some relationship from an employer's point of view. One, it makes business plans so simple, I'm going to pay X amount of money, I don't have to do anything else. It's simple. Right? And the less sophisticated employers we have, they like that because it is just so complicated that they look for that. And what they're trying to do is avoid unemployment. They're trying to avoid the social security workers' comp insurance cost all of those things. Easily that is about a 30%,

Les A. Schneider (43:04):

J. Larry Stine (43:04):
Least, at least 30%. So, hey, if I'm 10 99, I'm saving 30% per a person that I'm, I'm using. So that's a very strong driving.

Les A. Schneider (43:14):
But if you're gonna have somebody be in a independent contractor, and if you can get by all the factors in these various tests, would you advise somebody that you're probably better off not paying them the check to them individually, that you may be better off paying the check to a limited liability corporation or a, a regular corporation or an S corporation, whatever it may be. Because then if you write the check to the corporation right? Then the corporation may have some liability to that worker, but maybe it somewhat gets off your back. Is that a, is that a, a safer approach to use?

J. Larry Stine (43:52):
It is a safer approach to use because you're, in fact, you've got another intermediate step. They got this corporation and clearly that corporation it is an employee relationship

Les A. Schneider (44:05):
Between those, those two

J. Larry Stine (44:07):
Entities. And therefore that corporation has the un disputed requirement to pay overtime to pay the taxes. And what happens sometimes of course, is they don't.

Les A. Schneider (44:20):
And if you throw into that, the fact that in addition to paying into that other entity other than the individual you have said you can work forever wherever you want for. Right. You know, you can, you can. I'm telling you what to do, not how to do it. Correct. And, you know, here's when I would like the job completed by, but I'm not telling you, you gotta be behind the desk from nine to five every day.

J. Larry Stine (44:46):
Yeah. They distinct. A lot of times, we'll, think about, think about a painter, you and I ha hire a painter and we get the painter in. We'll talk about what the color is, what the mat is, what you want this shine, what type of color or trim do we want? And then he's kissing me, other says how much we're gonna do? I go, great. And none of us really have a big dispute about him being an independent contractor. On the other hand, if I'm a guy who employs painters and I've got all my painters as 10 90 nines and I'm sitting there telling them how to do it, I'm giving them the trucks. I'm giving them the ladders

Les A. Schneider (45:23):

J. Larry Stine (45:24):
The painters and the paint, and I come by and critique it, but I'm putting 'em as 10 90 nines.

Les A. Schneider (45:32):
So much you're gonna have a, a more difficult time.

J. Larry Stine (45:35):
Have and and and remember one of the factors is the hiring party is is the business of the hiring party.

Les A. Schneider (45:40):
That is, they're in the business of

J. Larry Stine (45:42):
Painting. Yeah. So if I'm in the business of painter, it's a lot harder than my independent, all my independent contractors for paint firms. That's a fact. And

Les A. Schneider (45:49):
Then from the, you know, the practical matter of, let's say you have an investigator come in, whether it's for the Georgia Department of Labor for unemployment or the wage and hour division of the Department of Labor for a wage and hour audit or a worker's comp audit that the insurance company is conducting. If you have a lot of individual names that you've made payment to and they asked to see your check register for that, that's gonna raise eyebrows. Where sometimes if some, if it's made out to Joe's Painting Company or Sylvia's, you know restaurant Inc a lot of times that won't get picked up as quickly by the auditor.

J. Larry Stine (46:31):
No. That that is, that is in fact true. Because what happens is those checks show up on accounts payable, they don't show up in there and then they're not individual

Les A. Schneider (46:39):
Facts. Right. Cause

J. Larry Stine (46:40):

Les A. Schneider (46:40):
Got, and you wouldn't have to issue a 10 99 to a corporate entity where you would have to issue a 10 99 to the individual if you pay them more than 600. Now the LLC I believe you have to also issue the 10 99 either, but it, the 10 99 has to be the only exception that I have read about is a a, a corporation that you don't have to issue it to. Now most companies issue 'em com completely correct. Cause they don't even want to be questioning. But again, that also is something you have to be careful about. And again, if you pay somebody more, I think it's more than either a 600 or a thousand dollars a quarter, you have to issue that 10 99.

J. Larry Stine (47:27):
It used to be 600, but I haven't looked at it recently either. And, and so that's, that is a problem. One other thing I wanna talk about before we run outta time is the news. We've been hearing about the changes in the independent contractor rules from wage.

Les A. Schneider (47:41):
Yes. Let's talk about that. Well,

J. Larry Stine (47:43):
The, the problem is when you get the news, sometimes what you hear is there's a new regulation out and it's going impact independent contractors. Problem is, there's two things going on that you haven't heard in the news. First is the thing that the current administration has issued is a notice of proposed rulemaking. Right. And the comments aren't even close. The comments don't close until December the 13th. So then what happens after they have those comments, they have to consider all those comments and then eventually they'll issue a final rule.

Les A. Schneider (48:17):
And that, and that would be during this presidency, the Biden administration, where the Trump administration have issued some rules. Right. But then those rules were

J. Larry Stine (48:27):
Canceled. No, no, they're so valid.

Les A. Schneider (48:29):
So they're still valid as of right now.

J. Larry Stine (48:33):
Yeah. The Biden administration issued a regulation a a federal register saying it's canceled. Right. And the court went, ah, you didn't follow the APA provisions. They're still in a fact. So then we then, after they lost that ballot, trying to do it on the cheap and trying to do it quick cause it's gotta follow the process, they now have issued this proposed rules.

Les A. Schneider (48:53):
So let's talk a little bit about what we call the regulations that were put out during the Trump administration. Sure. How would you categorize those regulations and what do the, is that making it harder or easier for somebody to qualify as an independent contractor? Well,

J. Larry Stine (49:10):
And, and interesting and, and one thing I wanna make real clear to everybody, we use, a lot of times we use the word regulation and lawyers make a distinction between regulations and interpretive guidance. And there's a big legal difference. And it's important in this one. Cause regulations are the force and effect of law. It says, you gotta do it, you gotta do it. Interpretations are, this is our agency's interpretation of the law. These are not regulations. This is simply interpreted buildings. And the more agent administrations put back and forth, the less effective they become because the courts go well, it's supposed to be the learned opinion of the agency. And then what I'm getting is I'm getting a change every four you, but going back to your question, having read the two regulations, the Trump looks like it's the classic rules. For example, it uses the economic dependency and the SI factors that we normally look at.

J. Larry Stine (49:59):
Right. And in reading the regulations, what they cite is the Ruthford food versus McComb, which is the 1947 Supreme Court decision about economic dependence. And the cases that follow in the proposed rule, they dropped Rutherford FUS citations, they dropped the citations to the cases that they were citing, which have been the bedrock of the ffl s a definitions from on. And then they put some much more touchy feely kind of rules and tried to put a spin on it. And off to one side, not following what the courts have said. They're adding factors that look like to me have not been seen before.

Les A. Schneider (50:41):
But it would make it harder for somebody to be an independent contractor as opposed to an employee

J. Larry Stine (50:47):
If they, if, if, if the courts take their, when these things finally become, finally become interpreted guidance and they will, there's just a ma it's, they're not yet. It's just a matter of time. And the court says, yeah, we're gonna follow 'em, it's gonna be more difficult. Mm-Hmm. <Affirmative>, just because of the way that they have structured it and the spend they put on it, they've made it a lot harder in it than the classic cases that we've had from the Fair Leader Standards Act from 1947 Floyd. So that's, but they use the same words, but they defined them differently. Like they used the economic reality tests, which we remember we talked about, which

Les A. Schneider (51:25):
Is very similar to the Georgia Department of

J. Larry Stine (51:28):
Labor test. Yes. Yeah. Although that one's even harder when they add the occupation,

Les A. Schneider (51:31):
When they add the

J. Larry Stine (51:32):
Last piece. But then when they, when they start defining the factors and what they do is they have a series of factors in this definition, they use the same words.

Les A. Schneider (51:43):

J. Larry Stine (51:43):
But when they start defining in the bulk of it, when they look at the, the the factors, it gets a different look to them. So opportunity for profit loss, depending on managerial skills investment and by the work and by the employer, the degree of permanency of the work relationship, nature and degree of control extend to the, which the work is performed in the integral part of the employer's business skills and initiatives. Right. Are just, they use the same words, but they define each one of those factors different.

Les A. Schneider (52:19):
So would it be fair to say that during the Trump administration and what they came out in the interpret bolt and they were trying to capture some of the, what we call the gig economy workers and trying to make that a little easier to be an independent contractor as opposed to an employee where the Biden administration interpretable and would push it more toward them being employees?

J. Larry Stine (52:43):
Well, it, it, it's, it's fair to say that what the Trump administration did is it went back and said we're, we're using the stuff that was developed by the Supreme Court. And remember most of it was developed in the 1940s. Right. And has been pretty continuously enforced ever since. So it, it by nature tends to be a little bit more conservative. And I think with the, he more helpful for the gig employees to be found, independent contractors, the new one kind of reflects some of the more current thoughts of trying to make it harder, like the ABC test mm-hmm. <Affirmative> in California and make more and more people employees versus dependent contractors.

Les A. Schneider (53:20):
But either, regardless of which one is ultimately what employers will follow, it doesn't change our initial comments about the fact that for wage now purposes and somebody can be an employee mm-hmm. <Affirmative> and we subject to overtime for E E O C purposes. Oh yeah. The same issues. Yeah.

J. Larry Stine (53:43):
The, the Trump regulation or interpretive bulletins really are still more liberal in finding people to be employee.

Les A. Schneider (53:52):

J. Larry Stine (53:53):
Than the common law definitions.

Les A. Schneider (53:54):

J. Larry Stine (53:55):
So it's the, you have common law definitions over here than you have the kind of classic definitions of what we've had under the expanded versions of the F L S A. Right. Which has been an expanded version because one of the quotes was from then Senator Black and then later Justice, that this was the most broad definition of employee ever put in a, an act. And that's the way they treat the fairly standard act, the proposed regulations make that even tougher. Tougher.

Les A. Schneider (54:23):
Exactly. Right. So again, at the end of the day, the, an employer has to be mindful of which law is gonna affect them. Right. And it's not necessarily true that one size fits all that you could have somebody who is an employee for purposes of one act, but an independent contractor, the purpose of the other. And that there has to be some thoughtful analysis, perhaps involvement of legal, legal counsel, accountants to come up with something that that gives the employer some security that they're not gonna get socked with a liability right down the road. And there's the practical matter of if there's an injury involved to the worker, et cetera, what's gonna be the ramification? So Right. This is not something to be dealt with lightly. There needs to be some serious thought in it. And I think we have tried today to outline to all of you some of the pitfalls that can exist out there.

Les A. Schneider (55:24):
Obviously our firm and others have done analysis of people who work for companies and what they do and whether or not in our view, which hole they're gonna fit in, whether they're gonna fit into that employee hole or that independent contractor hole. But I think that's something that all employers have to take a hard look at. And we have noticed, it has picked up lately that our analysis of this issue is coming from more and more professions. And again, it's not just a matter of the Uber driver. We can be talking about, you know, people who are professionals like den dentist, doctors, et cetera, and also people who are in, in interior design, people, et cetera. So we hope this has been helpful today. We certainly would invite any of your questions that you wanna send to us, and we hope that we have provided a, a little bit of sunshine on this issue and makes you think about the kind of factors you need to use in your analysis.

J. Larry Stine (56:28):
I'll, I'll end with one thing that is, you wanna be safe, make a

Les A. Schneider (56:32):
Voice. Right. That certainly would be true. Yeah.

J. Larry Stine (56:35):
You're not gonna get penalties if you make them employee. You may make your business not workable

Les A. Schneider (56:41):
Or it may be a little more expensive. Yeah. And you have to, you have to obviously measure all that. Right. Well, everybody have a good weekend and good holiday season. Thank you. Bye-Bye.

Employee Misclassification and Overtime Issues promo graphic
Webinar Date: Friday, December 02, 2022
Start Time: 12:00 PM
End Time: 12:45 PM
Presenter(s): J. Larry Stine & Les A. Schneider
Status: Available On-Demand
Venue: Zoom

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