A new rule proposed by the Department of Labor could bring partial relief to businesses struggling to stay afloat amid the COVID-19 pandemic’s economic fallout. It could also help millions of workers who are straining to maintain their livelihoods or attempting to find new ones.
For the first time in more than 80 years since the enactment of the Fair Labor Standards Act, a new proposed rule seeks to provide clarity on the definition of an “independent contractor” for general industry.
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This is important because it can be difficult for businesses to differentiate between employers and contractors, and extremely costly if they make the wrong determination.
As Labor Department Secretary Eugene Scalia noted, “Employers and workers looking for guidance have had to parse the sometimes-divergent decisions of the federal courts of appeals, and opinion letters the Labor Department issues occasionally without public notice or input.”
Ambiguity about how to classify workers can result in high administrative costs and cause fear and uncertainty for employers who risk costly lawsuits that could destroy their entire business if they make the wrong determination.
Fines and penalties for misclassifying workers can include back payroll tax payments, over 40% of the misclassified workers’ wages for up to three years, and, if the misclassification is determined to be intentional, up to $500,000 in fines and a year in prison.
It’s not just a difference in payments that separates employees from contractors. Employers could be on the hook for many other violations, such as: not properly documenting a worker’s hours, neglecting to