Smart Benefits: Determine Independent Contractor vs. Employee for ACA Compliance
Monday, September 14, 2015
Rob Calise, GoLocalWorcester Business/Health Expert
A new Administrator’s Interpretation is designed to help employers correctly classify employees – and avoid DOL enforcement actions.
The distinction between employee and independent contractor is important, since employees are entitled to workplace protections such as minimum wage, overtime, and workers' compensation. In addition, ACA regulations specifically state that independent contractors are not considered employees for purposes of providing health benefits. Due to an increasing number of misclassifications of employees as independent contractors, the new guidance aims to help employers properly determine a worker’s status.
While there is no clear-cut checklist or rule to determine whether a worker is an employee or independent contractor under the FLSA, courts use the multi-factorial “economic realities” test, which focuses on whether the worker is economically dependent on the employer (an employee) or in business for him or herself (an independent contractor). This test should be applied in view of the Fair Labor Standards Act’s (FSLA) broad scope of employment and the “suffer or permit” standard.
To assist in the determination of worker status, the Interpretation provides a discussion of several factors employers should consider to classify workers, including:
• Is the work an integral part of the employer’s business?
• Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
• How does the worker’s relative investment compare to the employer’s investment?
• Does the work performed require special skill and initiative?
• Is the relationship between the worker and the employer permanent or indefinite?
• What is the nature and degree of the employer’s control?
The guidance stresses that there is no mechanical formula for using these factors to arrive at the correct result; rather, they should be considered and weighed against one another in each situation to determine whether the worker is really in business for him or herself or is economically dependent on the employer.
Rob Calise is a founding partner of Cornerstone Group, where he helps clients control the costs of employee benefits by focusing on consumer driven strategies and on how to best utilize the tax savings tools the government provides. Rob serves as Chairman of the Board of United Benefit Advisors, and is a board member of the Blue Cross & Blue Shield of RI Broker Advisory Board, United HealthCare of New England Broker Advisory Board and Rhode Island Business Healthcare Advisors Council. He is also a member of the National Association of Health Underwriters (NAHU), American Health Insurance Association (AHIA) and the Employers Council on Flexible Compensation (ECFC), as well as various human resource associations. Rob is a graduate of Bryant University with a BS in Finance.
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