For a business to succeed, it needs to cultivate the best talent in its sector. With the current expansion of the gig economy (think ride-sharing such as Uber or Lyft) where there is the convergence of technology and human labor, along with the needs and demands of millennials who communicate and interact differently from their older peers, how a business recruits, engages and compensates its talent is a moving target.
The federal government just added to the fluidity of the situation. If you are a follower of the Gordon Law blog, you will know that we have previously discussed the distinctions between employees and independent contractors. (Please see https://gordonlawlv.com/incorrect-classification-of-your-workers-as-independent-contracts-can-be-a-costly-mistake/ )
On January 25, 2019, the National Labor Relations Board (NLRB) issued a ruling that clarified how the federal government distinguishes between employees and independent contractors. (Please note that the rules in Nevada are different from the federal rules). The distinction for a business owner has far-reaching implications. If you have independent contractors, you do not have to withhold taxes, provide benefits or even pay minimum wage. If you get it wrong, you may subject yourself to fines from both the state of Nevada as well as the federal government, including liability for unpaid payroll taxes (for which the business owner will be personally liable); unpaid unemployment taxes; unpaid workers’ compensation premiums; overtime liability; as well as the costs of benefits that you offer to your other employees.
Under the new federal standard (which reinstates a previously disregarded standard), there is no clear-cut determination. Rather, there are several factors (that are equally weighed) in determining that a worker is an independent contractor. They are:
- The extent of control, which by agreement, the master (employer) may exercise over the details of the work;
- Whether or not the one employed is engaged in a distinct occupation or business;
- The kind of occupation with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
- The skill required in the particular occupation;
- Whether the employer or worker supplies instrumentalities, tools and the place of work for the person doing the work;
- The length of time of the engagement;
- The method of payment, whether by time or by job;
- Whether or not the work is part of the regular business of the employer;
- Whether or not the parties believe they are creating an independent contractor relationship; and
- Whether the “employer” is or is not in business.
In reading this list, it becomes apparent that there should be a written agreement between the business and independent contractor to ensure that the foregoing factors are agreed to and properly documented. Other items that a business should contain in its independent contractor agreements include: confidentiality clauses; indemnification clauses; non-solicitation clauses; non-compete clauses; requirements of insurance; and dispute resolution clauses.
If you, as a business that retains independent contractors, do not properly document the relationship, you do so at your peril. Not only can the federal government and the state of Nevada come after you, but the so-called independent contractor may come after you for lost wages or benefits. In fact, there is a whole sector of lawyers who seek to bring class action litigation against businesses that improperly classify their talent.
Your business is dependent upon the talent you retain. In such retention, you should be attentive to the changes in the market and the law. Most importantly, you should protect yourself from incurring greater liability while you are cultivating the talent for your busines