Request a call Login

  • On March 11, 2024, the U.S. Department of Labor’s (DOL) new rule for determining whether an employee is an independent contractor is scheduled to take effect. Health care and trucking industries that are heavily reliant on independent contractors are likely to experience disruptions in the labor supply and an increase in wages. Let’s dive into this to determine the implications this might have for small business owners.

    Understanding The New Rule

    The new rule reinstates an earlier standard that requires companies to collectively consider various economic factors to determine a worker’s classification as a W-2 employee or an independent contractor using a 1099 form. This shift rescinds the 2021 ruling, which placed greater emphasis on two factors:

    • Control over the work 
    • Opportunity for profit or loss

    The totality-of-the-circumstances analysis now incorporates the worker’s skill and initiative, the permanence of the working relationship, the worker’s investment in equipment or materials, and the extent to which the service rendered is integral to the employer’s business.

    Impact On The Health Care Industry

    The implications of the new rule on the health care industry are multifaceted, particularly for nurses and home health aides who commonly work for multiple staffing agencies. The independent contractor status has been a longstanding issue in this sector, and the new rule is expected to prompt staffing agencies and health care facilities to reassess their utilization of the 1099 model. In addition, the shortage of nurses and home health aides adds another layer of implications for this industry. This was caused by the early retirements during the COVID-19 pandemic and the increasing medical needs of Baby Boomers, further intensifying the urgency for employers to address labor classification and retention challenges. Approximately 100,000 registered nurses in the U.S. left the workplace due to the stresses of the COVID-19 pandemic. By 2027, almost 900,000, or almost one-fifth of 4.5 million registered nurses in the U.S., intend to leave the workforce.

    Impact On The Trucking Industry

    Similarly, the trucking industry anticipates significant repercussions from the new rule. The classification of truckers as independent contractors, a prevalent practice in the industry, may require a fundamental restructuring of the business model should they be reclassified as employees.

    For trucking companies, the prospect of reclassifying truckers as employees presents logistical and financial complexities. With many drivers renting trucks from the companies they deliver goods for, distinguishing between an independent contractor and employee status becomes critical. The ownership and usage of the vehicle, along with considerations of investment and opportunity for profit or loss, are central to the classification under the new rule.

    Economic Implications

    The potential reclassification of health care and trucking workers has far-reaching economic implications. Notably, the new rule is anticipated to escalate labor costs for companies, which could subsequently be passed on to consumers. In addition, if reclassified as employees, the impact on overtime pay for truckers is poised to become a significant issue given the industry’s long working hours and the entitlement to overtime pay for nonexempt workers. Under the Fair Labor Standards Act (FLSA), nonexempt employees are entitled to overtime pay, but independent contractors are not.

    The Assistance Of A PEO

    Amidst the evolving regulatory landscape and the DOL’s new rule for determining worker classification in industries such as health care and trucking, small business owners can seek support and guidance from a professional employer organization (PEO) like GMS. Partnering with GMS gives small business owners access to expert HR support, risk mitigation, compliance expertise, and talent management services, enabling them to navigate this new rule’s complex implications. In addition, GMS offers payroll and tax filing, benefits administration, compliance support, risk and safety management, and HR services, allowing business owners to focus on their core competencies. If you have a business in one of these industries, partnering with GMS is a crucial resource for you, ultimately offering you peace of mind and strategic support with evolving rules and regulations. We work with many health care and trucking companies to ensure they remain compliant and feel supported during these times of uncertainty. Interested in learning more? Contact us today to learn more.

  • To safeguard workers’ rights, the New York City Council recently passed a bill that promises to reshape the landscape for employees and independent contractors across the city. On December 3rd, 2023, a significant mandate was set in motion, requiring the Department of Consumer and Worker Production (DCWP) to collaborate with various agencies and organizations to publish a comprehensive workers’ bill of rights.

    A Detailed Look At The Workers’ Bill Of Rights

    This bill clarifies a spectrum of federal, state, and local labor laws designed to protect employees and independent contractors. In addition, it dives into the fundamental right to unionize, empowering workers by highlighting their collective strength and unity. One of the most noteworthy features is its stance on protecting individuals regardless of immigration status. By highlighting this point, the legislation sets a precedent for inclusivity and fairness in the workforce, promising security and support to all workers within the city’s bounds. It’s essential to note that employers who fall short of the mandated posting requirements will face a $500 penalty, with a 30-day window for correction after the first complaint.

    Implementation Timeline And Employer Obligations

    By March 1st, 2024, the finalized workers’ bill of rights will be available on the city’s website, ensuring accessibility in multiple languages. Starting July 1st, 2024, employers are obligated to provide each employee with a copy of the workers’ bill of rights. This isn’t just a legal formality, employers must prominently display this information in the workplace, ensuring visibility and accessibility to all workers.

    What Next?

    For small business owners in New York, the path forward involves embracing these changes and ensuring compliance with the workers’ bill of rights. Fortunately, this path forward can be streamlined and more efficient when you partner with a professional employer organization (PEO) like GMS. GMS’ HR experts navigate the complex employment regulations, offering tailored solutions to streamline compliance efforts. They provide comprehensive HR support, assisting with implementing necessary workplace changes. Partnering with GMS empowers small business owners to navigate these new requirements seamlessly, allowing them to focus on their core operations while ensuring they meet the standards set forth by this transformative legislation. Contact our experts today to learn more.

  • In a move to support freelance workers, Illinois recently enacted the Freelance Worker Protection Act (FWPA), a comprehensive piece of legislation set to take effect on July 1st, 2024. This landmark law ushers in a new era of protection and fairness for freelance professionals in the state.

    Defining Freelance Workers

    The FWPA sets clear criteria for freelance workers, defining them as “natural persons” hired as independent contractors by non-governmental entities, whether in Illinois or for entities located in Illinois, with a minimum payment of $500 (either in a single contract or the aggregate of multiple contracts within a 120-day period). The definition excludes traditional employees and individuals engaged by construction contractors or subcontractors.

    A New Standard: Written Contracts

    One of the most significant aspects of the FWPA is its requirement for written contracts between freelance workers and contracting entities. These contracts must contain essential details, including:

    1. Contact information for both parties, along with the hiring party’s mailing address
    2. An itemized list of products and services provided, including their value and the compensation rate and method
    3. The due date for payment, which cannot exceed 30 days after services or products are provided
    4. The date by which the freelance worker must submit this list if the hiring party demands a list of services for timely compensation 

    The Illinois Department of Labor (IDOL) will provide model contracts for public use at no cost to make compliance easier. Contracting entities must provide a copy of the written contract to the freelance worker and retain it for at least two years, making it available to the IDOL upon request.

    Prohibitions To Ensure Fairness

    Once freelance work commences, the FWPA imposes several crucial prohibitions, including:

    • No conditioning of payment: Hiring parties are forbidden from linking timely payment to the freelance worker’s acceptance of lower compensation than initially agreed upon. 
    • Protection from retaliation: The FWPA also shields freelance workers from any action by hiring parties designed to penalize or deter them from exercising their rights under the law. This encompasses threats, intimidation, discipline, harassment, discrimination, or retaliation. 

    Enforcement And Remedies

    The IDOL will enforce the FWPA, offering freelance workers two avenues for alternatives:

    1. Administrative complaints: Freelance workers can file administrative complaints with the IDOL within two years of the final compensation’s due date.
    2. Civil actions: Alternatively, freelance workers may initiate civil actions without first exhausting administrative remedies. Upon receiving a complaint, the IDOL will conduct an investigation, and a hiring party’s failure to timely respond will create a presumption of liability in any subsequent civil action.

    Penalties and damages for violations depend on the nature of the infraction:

    • Failure to timely pay: Freelance workers can claim double the underpaid amount, along with attorney’s fees and costs
    • Lack of written contract: Violations of the written contract requirement will result in a statutory damage award equivalent to the greater of $500 of the contract’s value
    • Discrimination violations: Actions violating discrimination prohibitions will lead to the recovery of the contract’s value for each offense, associated costs, and attorney’s fees.

    The Role Of The Illinois Attorney General

    Furthermore, the Illinois attorney general can be crucial in enforcing the FWPA. They may initiate or intervene in civil actions, seeking civil penalties not exceeding $5,000 for each violation or $10,000 for each repeat violation within five years. In addition, the attorney can seek monetary damages for the state, restitution, and various forms of equitable relief, including injunctions and temporary restraining orders.

    Ultimately, the Freelance Worker Protection Act indicates a new era of fairness and security for freelance workers in Illinois. With written contracts, prohibitions against unfair practices, and robust enforcement mechanisms, this legislation empowers freelancers to confidently pursue their careers while ensuring they receive fair compensation.

    Unlocking Your Business’s Potential With A PEO In Illinois

    Illinois’ Freelance Worker Protection Act (FWPA) changes how businesses engage with freelance talent. However, the transition to compliance should not be intimidating. Partnering with a professional employer organization (PEO) in Illinois can be your key to success. A PEO like GMS not only understands the intricacies of the FWPA but also streamlines your workforce management. They offer expert guidance in creating compliant contracts, ensuring timely payments, and protecting your business from potential penalties. Allow us to take on the administrative burdens while you focus on growing your business. Contact us today.

  • On October 13th, 2022, the U.S. Department of Labor (DOL) will publish a Notice of Proposed Rulemaking. This will assist employers and workers to determine whether a worker is classified as an employee or an independent contractor under the Fair Labor Standards Act (FLSA). The FLSA established minimum wage, overtime pay, recordkeeping, and youth employment standards that affect employees in the private sector and Federal, State, and local governments.

    An independent contractor is a self-employed individual or entity contracted to perform work for or provides services to, another entity as a non-employee. Independent contractors are not entitled to such benefits because they typically have more flexibility to create their own schedules and work for several different companies at once.

    The proposed rule will provide guidance on classifying workers, and seeks to combat employee misclassification. According to the National Conference of State Legislatures (NCSL), employee misclassification is the practice of labeling workers as independent contractors, rather than employees. It allows employers to avoid paying unemployment and additional taxes on workers, and from covering them on workers’ compensation and unemployment insurance. Misclassifying a worker can cause the following issues:

    • Denies workers’ rights and protections under federal labor standards
    • Promotes wage theft
    • Allows certain employers to gain an unfair advantage over law-abiding businesses
    • Hurts the economy as a whole

    Understanding The Proposed Rule

    The new rule will ultimately preserve essential worker rights and provide consistency for regulated entities. In addition, employers are directed to consider exclusivity under the permanent factor, but it acknowledges that simply having multiple jobs does not necessarily make you an independent contractor. The following are factors that could be considered:

    • The amount of skill required for the job
    • The degree of performance associated with the working relationship
    • The worker’s investment in equipment or material required for daily tasks
    • Service rendered is integral to the employer’s operations

    The Impact A PEO Has On Your Business

    Are you wondering whether your employees are considered independent contractors or not? When you outsource HR functions to a PEO like GMS, you gain resources that help you figure out these decisions. HR outsourcing companies can manage a whole range of responsibilities for your business including payroll, benefits, risk management, and HR. At GMS, we have HR experts to ensure you are staying compliant with the Department of Labor. Contact us today to learn more.

  • Employees and independent contractors all play important parts for small businesses across the country. While they can both work for the same company, there are key differences between the two.

    Why does proper employment status matter? There are important legal differences between employees and independent contractors that affect payment, protections, and other key HR matters. In addition, improper employee classification can lead to serious penalties from the IRS. Here’s a breakdown on what differentiates independent contractors and employees and how it can impact a small business.

    A collection of employees and independent contractors for a small business. 

    How to Determine the Degree of Control Through Common Law Rules

    Control is a major factor in what separates an employee and an independent contractor. While employers maintain some control over employees, independent contractors maintain a level of independence. According to the IRS, there are three different categories of control that can help you determine if someone is an employee or an independent contractor.

    Behavioral Control

    The level of control an employer has over how projects are completed is a good identifier for proper classification. The IRS names four different factors that fall under behavioral control. 

    • Type of instructions given
    • Degree of instruction
    • Evaluation systems
    • Training

    Types of Instructions Given

    In terms of instructions, these are directives that employers can give to employees about when, where, and how work should be done. This can include commands on what equipment an employee uses, the order which tasks are done, and where to purchase supplies. Employees are subject to these instructions, while independent contractors have freedom to complete tasks how they see fit if it meets the conditions in their contract or scope of work (SOW). 

    Degree of Instruction

    The degree of instruction also plays a factor. In general, the more detailed an employer’s instructions are, the more likely it is that a worker will be considered an employee. However, this can vary depending on the nature of the work and level of expertise for both the professionals and contractors. According to the IRS, “the key consideration is whether the business has retained the right to control the details of a worker’s performance or instead has given up that right.”

    Evaluations

    If done, evaluations also can share insight into whether an employer’s degree of control, mainly in terms of how in depth an evaluation is. Evaluations that only consider end results don’t shed much light on the matter. However, an evaluation that studies specific details of how someone completes a task can be evidence that the worker in question is an employee.

    Training

    If an employer requires training, it’s a strong indication that the person being trained is an employee. This is because training is evidence of control, as it means that the person will learn how an employer wants the job in question to be completed while independent contractors typically have some form of outside training.

    Financial Control

    Another factor of control involves the economic aspects of a job. The IRS designates five different financial control factors that help determine if someone is an employee or and independent contractor.

    • Significant investment
    • Unreimbursed expenses
    • Opportunity for profit or loss
    • Services available to the market
    • Method of payment

    Significant investment

    While included as a control factor, significant investment can be hard to determine. Both independent contractors and employees can spend notable sums to acquire equipment necessary to complete a job. Instead, significant investment plays a bigger role when combined with some of the following factors.

    Unreimbursed expenses

    If an employer reimburses someone for work expenses, that’s generally a sign that the person in question should be considered an employee. It’s not uncommon for independent contractors to incur similar expenses, but they will generally won’t be repaid. However, there are situations where employees aren’t repaid for expenses, so a lack of reimbursement isn’t necessarily a determining factor.

    Opportunity for profit or loss

    A sign that someone is an independent contractor has more opportunity for both profit and loss. If a contractor is already set up with the necessary equipment, he or she can make a greater profit. However, that contractor may also have a job where the investment outweighs the income, resulting in a loss. Employees have a much more stable income and typically don’t need to deal with the ebbs and flows of investment costs.

    Services available to the market

    An employee won’t have to market the availability of their services to you; they’ll simply do their job. However, independent contractors typically make their services available on the market and float from job to job. Note that an employer can have an employee who freelances outside of work hours. In this situation, that person is still considered an employee of the company in question, but any business this employee freelances for on the side, would classify this person as an independent contractor.

    Method of payment

    Employees have a regular payment schedule, whether it’s a base salary that’s paid out in set increments of time or an hourly arrangement. Independent contractors are usually commissioned for a set amount of work. This can be a flat fee that’s delivered at the completion of a project or an hourly agreement. For example, a freelance editor or a lawyer can set a specific hourly rate and you could pay this person for 10 hours of work.

    Type of Relationship

    An employer’s relationship with a worker is a key part of proper classification. According to the IRS, there are four different identifiers employers should consider:

    • Written contracts
    • Employee benefits
    • Permanency of the relationship
    • Services provided as key activity of the business

    Written contracts

    The existence of a contract is not a determining factor for either employees or independent contractors, even if it states that someone is either classification. Instead, the IRS reviews the nature of the employer and the person in question’s relationship to measure their actions instead of written language.

    Employee benefits

    In general, if a worker receives benefits from an employer, they are considered an employee. Independent contractors are considered self-employed and are not privy to be a part of an employer’s benefits package. However, the lack of benefits doesn’t mean that someone must be an independent contractor, as a business may not necessarily offer any benefits package to their employees.

    Permanency of the relationship

    Employers don’t hire employees with the expectation that these employees won’t work for them after a short period of time. While independent contractors are generally temporary solutions for businesses, the IRS views any work relationships are meant to be indefinite as that between an employee and employer.

    Services provided as key activity of the business

    The services that independent subcontractors provide are typically important, but not critical, for a business’ success. However, if an employer hires someone to provide a service that’s the IRS considers a “key activity of the business,” it may view the relationship as that between an employee and an employer. In this definition, a key activity is part of the main services a business provides, such as if an electrical company hired an electrician for regular side work. In this instance, the IRS would view this as a part-time employee instead of as an independent contractor.

    How Employee Classification Impacts HR Management

    Once someone is determined to be an employee or and independent contractor, an employer can use this information to make sure they stay in compliance with any government regulations. The classification status of a worker impacts several HR functions ranging from financial considerations to employee protections.

    Payroll Tax Management

    The classification of a worker has a direct impact on how their taxes are handled. If someone is considered an employee, an employer is responsible for withholding and depositing their payroll taxes. Employers are required to have employees provide their social security number and complete Form I-9 for employment eligibility and Form W-4 for employee’s withholding. The employer will then report what an employee earned during the year on Form W-2 and send copies to both the employee and the IRS by Jan. 31.

    Independent contractors need to complete Form W-9. This will allow employers to confirm the potential contractor’s name and receive his or her Taxpayer Identification Number. After a contractor works for an employer, that employer provides both the contractor and the IRS with a completed Form 1099-MISC by Jan. 31. While employers are not responsible for payroll taxes with contractors, they must report the payments made to the contractor for their own tax purposes. However, if a contractor was paid less than $600 during the year, no Form 1099-MISC is required.

    How and When They’re Paid

    The payment process for employees is fairly straightforward; employees are paid either hourly rates or with a base salary. Their wages are then paid out on set dates that range anywhere from one week to one month apart.

    Payment for independent contractors largely depends on the stipulations provided in a contract or SOW. Both parties can agree to varying payment structures and fees, whether it’s an allotment of hours for work or a flat fee. In terms of when contractors get paid, that’s another matter that should be stated in writing. Some contractors will split fees up, such as requiring half the fee up front and half upon completion of the project. Others will set payment due dates at certain milestones, such as within 60 days of completion.

    Employment Laws and Protections

    If a worker is considered an employee, they are protected by the various national and state employment laws that exist. However, that arrangement doesn’t extend to independent contractors. Since they’re not an official employee of a business, independent contractors are not eligible for many of the same benefits and regulations that cover regular employees. These include unemployment compensation, worker’s compensation, workplace safety laws, and other similar protections.

    Protect Your Company Through Expert HR Management

    As an Employer, you have the final call on who to hire, whether someone will be an employee or an independent contractor. You’re also on the hook to make sure that everything your business does is up to legal standards. Between payroll management, benefits administration, and other HR functions, that’s a lot of work and responsibility, with little time left for core business functions.

    A Professional Employer Organization allows small business owners to share the burden and strengthen their business at the same time. PEOs give small business access to a team of HR experts that can efficiently and effectively manage key HR functions, including proper employee classification. Contact GMS today to talk to one of our experts about how a PEO can help you save time and protect your business.