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By Christine Malafi

UPDATE: As of May 2021, this rule has been rescinded. Click here for updated guidance.

On January 6, 2021, the U.S. Department of Labor (“DOL”) issued a final rule changing the standard determining if a worker is an employee or an independent contractor under the Fair Labor Standards Act (“FLSA”).[1] According to the DOL, the purpose of this change is to make it easier to identify which workers are employees covered by minimum wage, overtime, and other provisions of the FLSA. This new rule reaffirms an “economic reality” test to determine whether an individual is in business for himself (e.g., independent contractor) or is economically dependent on a potential employer for work (e.g., FLSA employee).

Federal and State Issue

The determination of whether a worker is an employee or independent contractor is both a federal and state issue. The DOL views misclassification as denying access to critical benefits and protections to which employees are entitled by law. Employee misclassification also reduces taxes paid to federal and state governments and lowers contributions to state unemployment insurance and workers’ compensation funds.

New York State Guidance

According to the New York State Department of Labor, independent contractors must be free from supervision, direction, and control in the performance of their duties. They are in business for themselves, offering their services to the general public. Signs of independent contractor status include, but are not limited to, a person who has an established business, advertises in the electronic and/or print media, sets their own schedule, and pays their own expenses.

An employer-employee relationship may exist (rather than an independent contractor relationship) if the employer: (1) chooses when, where, and how workers perform services; (2) provides facilities, equipment, tools, and supplies; (3) directly supervises the services; (4) sets the hours of work; (5) requires exclusive services; (6) sets the rate of pay; (7) requires attendance at meetings and/or training sessions; (8) asks for oral or written reports; (9) reserves the right to review and approve the work product; (10) evaluates job performance; (11) requires prior permission for absences; and (12) has the right to hire and fire.

Federal Guidance

The new federal guidance describes two “core factors” that are most probative to this question: (1) the nature and degree of control over the work; and (2) the worker’s opportunity for profit or loss based on initiative and/or investment. Further, the test identifies three other factors that serve as additional guidelines in the analysis: (3) the amount of skill required for the work; (4) the degree of permanence of the working relationship between the worker and the potential employer; and (5) whether the work is part of an integrated unit of production.

1. Nature and Degree of Control Over the Work
   • Whether the worker exercises substantial control over key aspects of the performance of the work (e.g., setting their schedule, selecting certain projects, working with little or no supervision, and performing work for others). The DOL states that requiring a worker to comply with health and safety standards, specific legal mandates, contractually agreed-upon deadlines, and insurance policies does not constitute the type of control under this factor.
     
     
2. Worker’s Opportunity for Profit/Loss
   • Whether the worker has an opportunity for profit or loss based on their initiative (e.g., managerial skill and business judgment) or their investment (e.g., managing investments in, or capital expenditure on, equipment, materials, or helpers).
     
     
3. Amount of Skill Required for the Work
   • Whether the work requires specialized skill or training that the employer does not provide.
     
     
4. Degree of Permanence of the Working Relationship Between the Worker and Employer
   • Whether the duration of the work relationship is definite or sporadic. It should be noted that seasonal work does not necessarily show independent contractor status.
     
     
5. Part of an Integrated Unit of Production
   • Whether the work is an element of the employer’s integrated production process for a good or service (e.g., if the work is analogous to a production line).

These factors are not exhaustive, and no single factor is dispositive. However, the DOL stated that if the core factors point toward the same classification (whether the worker is an employee or independent contractor), then the weight of those factors will most likely outweigh the additional factors.

The final rule was published in the Federal Register on January 7, 2021 and the effective date of the final rule is March 8, 2021. However, the Biden administration does not favor this rule and it is possible that they will delay its implementation. The Biden campaign’s labor platform included a commitment to restore the Obama administration’s aggressive wage-hour misclassification agenda. This would create a more rigid test for qualifying workers as independent contractors than this rule.

What if a Business Does Not Comply?

If a business is discovered to have improperly treated an employee as an independent contractor, the business will be held accountable for employment taxes for that worker, as well as unemployment insurance and workers’ compensation contributions, with associated fines and penalties.

If you have any questions regarding the classification of employees versus independent contractors, please contact us.

Learn more about this issue here.

Thank you to Daniel Axelrod for his research and writing assistance with this article.

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[1] This rule is different from the prior factors used to distinguish employees from independent contractors. The prior factors were: (1) the nature and degree of the potential employer’s control; (2) the permanency of the worker’s relationship with the potential employer; (3) the amount of the worker’s investment in facilities, equipment, or helpers; (4) the amount of skill, imitative, judgment, or foresight required for the worker’s services; (5) the worker’s opportunities for profit or loss; and (6) the extent of integration of the worker’s services into the potential employer’s business.

On January 15, 2021, Christine Malafi joined Gettry Marcus, CPA, P.C. for their continuing webinar series on the recently passed Economic Aid Act (“EAA”), which has amended the Paycheck Protection Program (“PPP”) and now includes an Employee Retention Credit (“ERC”). 

Some of the key areas that were discussed include:

• SBA deadlines to apply for PPP 1 and PPP 2 loans through March 31, 2021
• Business type eligibility (and ineligibility) including certain non-profit organizations
• Calculating the maximum PPP loan borrowing amount
• PPP loan terms, maturity date, and loan forgiveness application deadlines
• Updated definition of the “Covered Period” to utilize a PPP loan
• Expanded permittable uses of a PPP loan, including new eligible “Covered” expenses such as: 
  • Operations expenditures
  • Property damage costs
  • Supplier costs
  • Worker protection expenditures
• Reapplying for a PPP 1 loan if all or a portion of the loan was originally returned or the borrower did not accept the full eligible loan prior
• Employee Retention Credit (“ERC”)
• and more.

VIEW WEBINAR REPLAY HERE.

As of May 28, 2021, the EEOC has released updated guidance. Visit our updated article here.

Since the first vaccines were administered in mid-December, employers and employees alike have questioned whether the workplace can require vaccination as a condition of employment. It will likely be months before the vaccine is available to most Americans, and thus it may be premature for private sector employers to propose a “vaccination for return-to-work” policy. However, on December 16, 2020, the U.S. Equal Employment Opportunity Commission issued guidance regarding employers’ obligations for mandatory COVID vaccination programs.

Essentially, the EEOC guidance provides that employers can require that employees get vaccinated as a condition of returning to work if their vaccination policies comply with the Americans with Disabilities Act (“ADA”), Genetic Information Nondiscrimination Act (“GINA”), Title VII of the Civil Rights Act of 1964, and other workplace laws.

If an employee declines to get vaccinated based on a disability[1] or a “sincerely held religious belief,” the employer must offer a reasonable accommodation to the employee, such as working remotely.[2] If no accommodation is possible, [3] then an employer may prohibit the employee from entering the business if that employee presents a direct threat to the health and safety of persons in the workplace, but the employer may not necessarily terminate the employee. Employers should evaluate these four factors to determine whether a direct threat exists: (1) duration of the risk, (2) nature and severity of the potential harm, (3) likelihood that the potential harm will occur, and (4) imminence of the potential harm.

An employer does not have to provide a particular reasonable accommodation if it poses an “undue hardship,” which means “significant difficulty or expense.” An accommodation that would not have posed an undue hardship prior to the pandemic may pose one now.[4] Prior to the pandemic, many accommodations did not pose a significant expense when considered against an employer’s overall budget and resources. However, the sudden loss of some or all of an employer’s income stream because of the pandemic is a relevant consideration. Also relevant is the amount of discretionary funds available at this time and whether there is an expected date that current restrictions on an employer’s operations will be lifted (or new restrictions will be added or substituted).

Additionally, EEOC guidance provided that the administration of a COVID vaccine by an employer is not a “medical examination” for purposes of the ADA and administering the vaccine or requiring employees to present proof of vaccination does not implicate GINA.

If you have questions regarding mandatory COVID vaccines in the workplace, please contact us. 

Thank you to Daniel Axelrod for his research and writing assistance with this article.

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[1] Title VII as amended by the Pregnancy Discrimination Act specifically requires that women affected by pregnancy, childbirth, and related medical conditions be treated the same as others who are similar in their ability or inability to work. This means that a pregnant employee may be entitled to job modifications, including telework, changes to work schedules or assignments, and leave to the extent provided for other employees who are similar in their ability or inability to work.

[2] On November 8, 2020, the New York State Bar Association passed a resolution urging the state to consider enforcing mandatory COVID vaccination, even if people object for “religious, philosophical or personal reasons.” The EEOC, however, did not issue any guidance on that resolution.

[3] If a job may be performed only at the workplace, there may be reasonable accommodations that could offer protection to individuals whose disability puts them at greater risk from COVID and who therefore request such actions to eliminate possible exposure. Even with the constraints imposed by a pandemic, some accommodations may meet an employee’s needs on a temporary basis without causing undue hardship on the employer. If not already implemented for all employees, accommodations for those who request reduced contact with others due to a disability may include changes to the work environment such as designating one-way aisles; using plexiglass, tables, or other barriers to ensure minimum distances between customers and coworkers whenever feasible per CDC guidance or other accommodations that reduce chances of exposure.

[4] For example, it may be significantly more difficult in this pandemic to conduct a needs assessment or acquire certain items, and delivery may be impacted, particularly for employees who may be teleworking. Or, it may be significantly more difficult to provide employees with temporary assignments, to remove marginal functions, or to readily hire temporary workers for specialized positions.