Nevada: Beware when designating workers as independent contractors

Nevada blue state mapFrom, Deanna L. Forbush recommends that employers use caution when they classify workers as independent contractors.  Deanna review the Department of Labor’s economic realities test and changes in Nevada’s definition of independent contractor.  Deanna writes:

State and federal requirements

In March 2015, during Nevada’s 78th legislative session, SB 224 was introduced. The bill was signed into law by the governor on June 2. The new law is designed to establish a conclusive presumption (an assertion that must be taken as true) that a worker is an independent contractor, not an employee, if the following conditions are met:

  • The worker is in the United States lawfully and possesses or has applied for an employer identification number or a Social Security number or filed an income tax return for a business or self-employment with the IRS the previous year.
  • The worker maintains a state or local business or occupational license, insurance, or bonding to perform her work.

In addition, the worker must satisfy three of the following criteria:

  • She maintains control and discretion over the means and manner of performance of the work and the results of the work. (This must be the primary element bargained for by the worker and the business.)
  • She maintains control and discretion over when the work is performed.
  • She is not required to work for just one business (with some exceptions).
  • She is free to hire employees to assist with the work.
  • She has invested a substantial amount of capital (based on factors such as her income, trade, and profession) in the business, including purchasing or leasing required tools, materials, and equipment; obtaining licenses; and securing access to a work space.

The clear intent of the new law is to overturn the definition of “independent contractor” established in Sapphire and provide statutory guidance on the definitions of “employee” and “employer” under Nevada’s wage and hour laws. Under the new statute, the fact that a worker is not presumed to be an independent contractor because she fails to satisfy at least three of the above criteria does not automatically create a presumption that she is an employee.

However, most employers must comply not only with state law but also with the provisions of the FLSA. Although Nevada and federal wage and hour laws are similar, the tests for determining whether there is an employment relationship is now different under NRS 608 and the FLSA.

Although the FLSA permits states to enact stricter standards, the Act was passed in part to ensure the payment of minimum wage and overtime, and it arguably preempts less stringent state laws on those issues. Complying with state and federal requirements became even more difficult when the DOL issued guidance on the classification of independent contractors under the FLSA and narrowed its definition of “independent contractor.”

For the FLSA’s minimum wage and overtime provisions to apply to a worker, the worker must be an “employee” of the employer, meaning that an employment relationship must exist between the worker and the employer. The FLSA defines “employ” as including to “suffer or permit to work,” representing the broadest definition of employment under the law because it covers work that the employer directs or allows to take place.

The DOL has traditionally permitted some workers to be classified as independent contractors if they controlled the timing and manner of the performance of the work. However, in its new guidance, the DOL announced that it will deemphasize reliance on the “control test,” which measures the degree to which a business controls an individual’s work, and primarily focus on the aspect of the economic realities test that evaluates whether a worker is economically dependent on the employer or is in business for herself.

In its new guidance, the DOL made clear that in its view, most workers are employees under the FLSA. The guidance brings many workers out of independent contractor status and into employee status. The DOL has stated that its aim in broadening its definition of “employee” is to give more workers access to “the critical benefits and protections” provided under the FLSA, including:

  • Overtime;
  • Minimum wage;
  • Benefits such as workers’ compensation coverage, unemployment insurance, and employer assistance in paying FICA taxes; and
  • Protection under Occupational Safety and Health Administration (OSHA) standards, the Affordable Care Act (ACA), the Family and Medical Leave Act (FMLA), and Title VII of the Civil Rights Act of 1964.

The DOL is undoubtedly motivated by its view that the misclassification of employees results in substantial losses to the federal government in the form of lower tax revenues. State governments are affected by a loss of tax revenue and depleted unemployment insurance and workers’ comp funds.

Read the full story at Nevada: Beware when designating workers as independent contractors

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