Any Clue What ‘Totality of the Circumstances’ Really Means?

What happens when your organization must provide minimum wage, unemployment insurance and Social Security benefits to all your “independent contractors”?

You might find out soon. On March 11, the U.S. Department of Labor’s updated independent contractor rules take effect. The change could reclassify millions of gig workers as full-time employees.

Many supply chain leaders rely on independent contractors, particularly in warehousing and trucking. A misclassification lawsuit could cost hundreds of thousands of dollars, even if you win. And that doesn’t include potential enforcement action from the feds.

Leadership definitely must audit your independent contractor work force for misclassification risk.

A safer play to fill your warehouse and fulfillment center shifts? Partner with companies that can provide flexible and adaptable labor via W2 employees.

Six Factors – Not A Single One ‘Determinative’

In 2021, the Department of Labor changed Fair Labor Standards Act rules to make it easier to classify workers as independent contractors. The recent move goes in the opposite direction.

On March 11, employers will have to classify workers based on their employees’ “totality of the circumstances.” You will have to consider six factors. No factor is “determinative” or “has a predetermined weight,” according to the Department of Labor.

The six factors are:

  1. Opportunity for profit or loss depending on managerial skill.
  2. Investments by the worker and the potential employer.
  3. Degree of permanence of the work relationship.
  4. Nature and degree of control.
  5. Extent that the work performed is an integral part of the employer’s business.
  6. Skill and initiative.

According to the Department of Labor, the change will reduce the risk of misclassifying employees as independent contractors. The changes also will provide “greater consistency for businesses that engage (or wish to engage) with individuals who are in business for themselves.”

Many business leaders, from the Associated Builders and Contractors and Flex, an app-based trade association, disagree. They expect increased costs, confusion and litigation.

Fast Company reported that Uber, Lyft, DoorDash and other companies in the gig economy claim the change will have little effect, even as they criticized the new rules. All the companies pointed out that their workers are attracted to the flexibility gig work offers.

States Have Targeted Independent Contractors for Years

Many states have passed earlier laws making it more difficult to classify workers as independent contractors. These include California, Illinois and Massachusetts.

The federal law does not impose California’s ABC test. Workers in the Golden State are employees unless companies satisfy three conditions:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  • The worker performs work that is outside the usual course of the hiring entity’s business.
  • The worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

Worker Classification Risk Is Acute for Warehouse Managers

In general, workers in the gig economy do not qualify for minimum wage, overtime pay, unemployment insurance, healthcare and Social Security benefits.

Many understand that Uber, Lyft and Instacart employees have the freedom to work when they want. But the rule change goes far beyond your latest DoorDash delivery.

According to The Washington Post, the revised rule could end up classifying huge swaths of current independent contractors as employees. These include truckers, construction workers, nail salon technicians, janitors, home-care workers, construction workers, landscaping workers, home health aides, retail workers, call center workers and security guards.

In addition, many warehouses, distribution and fulfillment centers rely on independent contractors. Many analysts think the new rule will classify those workers as employees.

Warehouses hire independent contractors when they expect demand to surge. Think holiday shopping and special sales. Forklift operators and others with specialized skills can be hired for specific tasks.

And companies can save money by not paying out all those benefits.

Options to Avoid Worker Classification Legal Action

Businesses have a range of options to protect themselves.

You can work with legal counsel to update policies and procedures. Review your entire roster of independent contractors. Retrain your managers.

All that is time-consuming and expensive.

And despite due diligence, your team might not get it right. Remember, no factor is “determinative” or “has a predetermined weight.” And do you really know what “totality of the circumstances” means in English?

The wrong choice could force your organization into expensive legal bills defending against a misclassification lawsuit. If Department of Labor officials disagree with your decision, you could face enforcement action.

Lose, and your company could pay back taxes, penalties, interest on unpaid taxes and punitive damages.

Depending on the state, you could face civil penalties. Fines in California range from $5,000 to $15,000 per violation. A pattern of willful misclassification can add another $10,000 to $25,000 to those totals.

That’s playing with fire. After all, according to the Economic Policy Institute, 10% to 30% of audited employers misclassify some workers. And that was before the upcoming change.

Warehouse Managers Should Take the W2 Option

If you have the option, the safer play would be classifying those employees as W2 workers, not independent contractors.

And warehouses have that option with Task4Pros.

Task4Pros is an app-based platform that gives companies with warehouses the ability to scale up or down quickly. Pros accept the jobs on the app, much like Uber or DoorDash drivers. The app shows when employees show up and depart, making for accurate billings. Customers can rate Pros on the app and create their own preferred workforce.

However, all Pros are W2 employees, substantially mitigating the risk of a misclassification lawsuit.

Beyond that, Task4Pros has a 100% fill rate and a turnover rate less than half the industry average. The company trains its personnel, so Pros hit the warehouse ready to work, not ready to be trained. And Task4Pros has an excellent safety record.

With Task4Pros, Don’t Worry, Be Happy

If you’re worried about the upcoming Department of Labor rule change, reach the workforce of tomorrow with technology that’s available today.

Warehouses need access to flexible and adaptable labor. And Task4Pros offers that access while minimizing risk.

Task4Pros has rapidly expanded from Nashville to Cincinnati, Louisville, Mobile, Alabama, Indianapolis and Memphis – even handling entire warehouse operations for select clients.

Task4Pros’ Brazilian subsidiary, MeuChapa, already operates in 3,000 cities in the South American country.

Want to find out more? Contact me – I would love to answer your questions.

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