The Wage and Hour Division (WHD) of the Department of Labor (DOL) of the United States has required to the Congress an increase of $49 million on the funds for 2016. The main reason for this increase is the need of hiring 300 additional investigators.

This requirement is specially based on what the WHD defines as “fissured workplace” which are those businesses that use the services of professionals, independent contractors, that are not employees itself but who are used to offer services to clients or to reinforce their workforce. According to the DOL, these type of contracts are used to conceal, or completely cut out, the relationship between worker and business.

Using external independent contractors can be really attractive for businesses, as the business owner saves money in taxes and benefits and frees its employees for other tasks and projects. But hiring independent contractors can also cause them serious problems with the DOL or the IRS.

 

It’s been already years that the WHD is focusing their efforts in cases of misclassification, this is, those cases in which independent contractors act as employees: the business owner that hires them tells them where, when and how to work or can even provide them the materials to perform that job. Using independent contractors is legal and important for the economy of the US, but the kind of contract between the business owner and the independent contractor must be in compliance with all the rules and regulations, otherwise it should be another kind of employment relationship.

The WHD is specially focused on certain industries where these kind of misclassifications are particularly common, such as:

  • Construction
  • Landscaping
  • Transportation
  • Car and Limo Services
  • Cable Companies
  • Internet Companies
  • Security Services
  • Restaurants
  • Catering Services
  • Hotel and Motel
  • Supermarkets
  • Home Health Care Services
  • Nursing
  • Child Care Services
  • Staffing
  • Janitorial Services
  • Ship Repair Companies
  • Oil and Gas Companies

The owner of any business that may be using independent contractors may be thinking he is saving money, but if those contractors do not perform their job as real independent contractors, this can mean in fines to the business a way bigger amount of money than what he may have ever imagined. According to the IRS, 80% of the workers that are classified as independent contractors are actually employees and this means that they are not receiving the benefits they should from the company, which could turn into lawsuits against the company.

For their own safety, it is important that any business owner that may hire independent contractors makes sure that the kind of contract and employment relationship with them is really an independent contractor kind of relationship, because if not, the company might have to face serious problems. There are 3 possibilities to make things in compliance.

First of all is knowing all the federal and state laws regarding independent contractors and making sure that they comply all those rules and regulations and that their employment relationship is 100% of business owner and independent contractor. In this case, the business owner doesn’t have to worry about any problem with the DOL or the IRS, as they are in compliance with all employment laws regarding independent contractors.

If they are not in compliance with all rules and regulations and those independent contractors actually have an employee kind of employment relationship with the company, the second option would be changing those workers situation from 1099 workers to W-2 employees. In this case, it could possibly happen that some of those 1099 workers wouldn’t want to turn into employees.

The third possibility is not assuming any risks or liabilities and, therefore, using the services of an external company of staffing and workforce. In this case, all the risks and liability of having 1099 workers or W-2 employees would be this external company’s, not of the business owner’s that hires the services of that company of staffing and workforce.

Each business owner must decide which of these situations describes best his company and which one of the three options is the best possibility for his company. The only option that they don’t want to take is not analyzing thoroughly their situation with their independent contractors and, in case it is necessary, taking the appropriate decisions to be in compliance.