Tens of millions of American workers willingly participate in what has now been termed a “gig economy.” Gone are the days when most workers would spend decades at one job and collect a pension. Side hustles and part-time jobs are now the norm. Despite this massive shift, which has been accelerated by the internet and a worldwide pandemic, businesses must remain vigilant in classifying and treating employees properly under federal and state law. The federal government as well as many states have proposed new legislation to protect workers in the gig economy. Enforcement actions are certain to rise as these new regulations take effect.
What does this mean for Georgia employers? Essentially, employers need to be careful not to jump on the independent contractor classification bandwagon without fully understanding the implications of a wrongful employment classification. Broadly speaking, independent contractors are able to exercise a significant amount of control over their own work whereas employees are under the direct supervision and control of their employer. Simply entering into an “independent contract agreement” is not enough to protect your business from fines and penalties. To determine whether a particular worker is an independent contractor or employee, different governmental agencies use differing analyses, which can complicate this issue significantly for employers. For example, Georgia currently uses the ABC Test to determine worker status while the IRS uses a common law standard.
The ABC Test Explained
The ‘ABC Test’ is a three-pronged test that is used to determine the proper classification of a worker. Georgia’s ABC Test differs slightly from others. The three conditions each worker must meet in order to be classified as an independent contractor are:
- Being free from “control and direction” from a hiring entity over the performance of services;
- Routinely performing work that is not within the typical scope of business conducted by the hiring entity; and
- Customarily engaging in an independent trade or business that applies to the work being performed for a hiring entity.
Why Does Worker Misclassification Matter to Georgia Employers?
If you are classifying a worker as an independent contractor when, in reality, the worker should be classified as an employee, you are depriving the worker of certain benefits. This includes overtime pay (time-and-a-half of the worker’s normal pay rate), rest and meal breaks, family and medical leave, among other benefits. Employers who misclassify workers are subject to substantial fines and penalties, which might pale in comparison to the negative publicity heaped onto the hiring entity.
DOL’s Final Rule
Shortly before the Biden Administration took office, former DOL Secretary Eugene Scalia issued a final rule on the independent contractor status. The rule, which clarified the test for employers subject to the Fair Labor Standards Act (“FLSA”), was set to go into effect in mid-March. However, the implementation was delayed until May 7, 2021, and may be further delayed. You can check out this page for updates.
Misclassification Hurts Everyone
When you consider how much in employment taxes the state and federal governments lose out on when an employee is misclassified as an independent contractor, it’s easy to see why state and federal agencies are focused on worker misclassification. Businesses that misclassify employees enjoy an unfair advantage in the marketplace. Most of all, employees miss out on benefits and pay that they not only deserve, but most certainly could use to support their families and show up to work happy and engaged.
Our team wants to help you build a business that is not only compliant, but can withstand the changing regulatory landscape. We believe in setting things up the right way so you can spend your resources on growing your company not fighting the government. Ready to talk? Call us at (678) 825-4525 to set up a consultation.
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