The Employee Fair Classification Act 

North-Carolina-e1437699510193.jpgFrom JDSupra, Jeremy Falcone reports on a North Carolina bill sent from the House to the Senate to address the issue of employee misclassification.  Jeremy writes:

The Act creates an Employee Classification Division within the Department of Revenue.  The Division would receive and investigate complaints of “employee misclassification,” defined as an employer’s avoidance of tax liability by classifying an employee as an independent contractor.  Once the Division determines that a violation has occurred, it could assess civil penalties.

The Act also requires the Employee Classification Division to coordinate information regarding reported misconduct among various state agencies, including the Department of Labor, the Division of Employment Security, and the Industrial Commission, for investigation of violations of each agency’s policies.

The Act largely describes the Employee Classification Division as a passive investigator of employee misclassifications that have been reported; however, some of the Act’s language contemplates that the Division would affirmatively seek out misconduct.  For instance, the Division’s powers and duties include “develop[ing] methods and strategies for information sharing between State agencies in order to proactively identify possible instances of employee misclassification.”  H.B. 482, N.C. Gen. Stat. § 143-763(7).

Determining Whether an Independent Contractor is Actually an Employee

Once a potential misclassification has been reported or uncovered, the Employee Classification Division would consider ten factors to determine whether an independent contractor has been misclassified:

  1. Whether the individual is engaged in an independent business, calling, or occupation;
  2. Whether the individual is to have the independent use of his or her special skill, knowledge, or training in the execution of the work;
  3. Whether the individual is doing a specified piece of work at a fixed price or for a lump sum or upon a quantitative basis;
  4. Whether the individual is not subject to discharge because he or she adopts one method of doing the work rather than another;
  5. Whether the individual is not in the regular employ of the other contracting party;
  6. Whether the individual is free to use such assistants as he or she may think proper;
  7. Whether the individual has full control over such assistants;
  8. Whether the individual selects his or her own time, subject to customer requirements;
  9. Whether the individual has a substantial investment in any equipment or tools required to perform the contracted work; and
  10. Whether the individual has the opportunity for profit or loss.

H.B. 482, N.C. Gen. Stat. § 143-764(a)(1-10).  The presence of one or more factor does not create employee status, and all of the factors are not required to find employee status.

The Act states that these factors are “intended to codify the holding in Hayes v. Board of Trustees of Elon College, 224 N.C. 11 (1944).”  H.B. 482, N.C. Gen. Stat. § 143-764(c).  However, the House’s final version of the bill added factors 9 and 10 which were not included in Hayes.

Read the full story at The Employee Fair Classification Act 

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