Four Approaches to Managing the Impact of the DOL Overtime Rule Changes

To comply with the Department of Labor’s overtime legislation, all employers must decide whether their salaried employees will be exempt or non-exempt from overtime by December 1^st of this year.  The DOL predicts the new regulation will cost private employers in the neighborhood of $1.8 billion in 2017.

There are four basic scenarios that employees will encounter in the coming months:

1. They will be paid the exempt base salary of at least $47,476 per year
2. They will be reclassified as an hourly employee and eligible for overtime compensation
3. They will be kept at their current salary level and payed for any overtime hours
4. Their typical overtime hours will be factored into a 40-hour work week to convert their current salary base into an hourly wage

Although these four scenarios differ greatly from one another, employers can navigate each one of them effectively if they follow the corresponding four phase engagement process.

Phase I – Employee Reclassification Checklist

1. Initiate a formal review of job descriptions to confirm exempt or non-exempt status
2. Review employee benefits, eligibility, and plan design
3. Retool employee handbook and policies (meal breaks, overtime, working from home, etc.)
4. Analyze workload  and overtime alert procedures to minimize overtime exposure
5. Firm-up hours, tracking expectations, and engagement goals for exempt supervisors
6. Restructure commission and non-discretionary bonus impact (only 10% qualify as salary)

Phase II – Employee Perception

1. Foresee various reactions from employees
2. Acknowledge that some employees will see this as a demotion, while others will see it as beneficial
3. Combat the negative stigma that comes with being salaried and then having to track hours
4. Anticipate negative employee feelings and determine how the employees, who have converted to hourly, fit within the new structure

Phase III – Employer Messaging

1. Propose an introductory meeting prior to December 1^st to notify employees of impending changes
2. Address the group as a whole concerning fairness and equality issues
3. Encourage follow-up communications and be prepared for informal employee inquiries
4. Issue the new policy with an updated employee handbook
5. Sample pay-stub layout for each affected employee
6. Reinforce employee value to company operations, explain rule is mandated by federal law
7. Update Job Description and Employee Acknowledgment signature

Phase IV – Employer Opportunity

1. Increase employee transparency with hours tracking
2. Improve performance reviews, productivity, and job cost
3. Minimize the risk of missing important issues that typically come to light for hourly employees

Although there is a lot of negative buzz concerning The DOL’s new overtime legislation, there is potential upside for employers. The DOL has prompted the need for a formal reset of how time is tracked and how jobs get done. If employers are able to comply with this legislation and minimize employee unrest simultaneously, they will be able to increase productivity and augment their bottom-line.

If you have any questions about this new overtime legislation or would like to talk with an expert to learn how Mosaic can help you navigate it successfully, call (303) 645-4270 or visit www.mosaices.com.

       

The Growing Cost of Ever-Increasing Benefits Administration Complexity

Health insurance premiums are expected to continue to increase:

• 77% of employers expect the Affordable Care Act will increase their company's health care costs dramatically
• 2017 premium increases are projected to be the largest in recent history (InternationalFoundation Survey)

Benefits administration complexities and increasing premiums are elevating the risk that your benefits cost will rise faster than the rate of overall premium growth.  To avoid this risk, you must carefully manage your employee benefits.  

Inaccurate or missed premium deductions are expensive, but fixable.  Understanding the causes of increasing benefits cost is half the battle.  Some of the most common causes include:  

• Competing payroll timetables vs. carrier cut-off dates and retroactive limits
• Challenges recovering lost premium dollars after the fact
• On-going age-banded rate adjustments
• Carrier customer service challenges (poor communication and follow-up)
• Numerous carrier invoice delivery methods (electronic and paper), including confusing self-bill invoices
• Inefficient, outdated, and inaccurate carrier technologies
• Matching plan premiums with employee pre- and post-tax deductions
• Competing demands of payroll and carrier invoice deadlines
• Post open-enrollment and renewal invoice confusion

Mosaic HR Services delivers customized solutions that save you time, increase accuracy, and manage your premium costs.  Our benefits administration solutions are designed to complement your benefit administration strategy. To learn more and to see how Mosaic HR Services' benefits administration service can help, visit www.mosaices.com/mosaic-hr or talk with an expert at (303) 645-4270.  

Department of Labor Overtime Changes and Automated Time and Labor Management

The Department of Labor recently increased the earnings threshold for employees to be classified as exempt from overtime compensation.  This will require that employers evaluate their systems for tracking time worked.  This change is just one of the many ways state and federal regulators are elevating their oversight of how employers compensate their non-exempt employees.  To minimize compliance risk, employers need to evaluate their systems for tracking time worked and appropriately pay overtime to eligible employees.

The complexity of managing and paying employees in today’s highly regulated employment environment requires a comprehensive system that does not rely on the integration of separate systems.  Mosaic’s Workforce One platform has the payroll, time and labor, and human resources capabilities employers need, all housed on one database and one application.

Workforce One delivers enterprise-class time and labor management capabilities including:

• Sophisticated Pay Calculation Engine supporting more than 250 calculation rules
• Multiple-EIN functionality that supports employees working in more than one legal entity
• Custom Overtime Flags
• Approaching Overtime Email Triggers
• Multiple Time Collection Profiles
• Overtime Requests
• Daily/Weekly Overtime Reports and Notifications
• Discretionary Bonus Calculations
• Quarterly Salary Level Reporting
• Catch-up Payment Support
• Blended Hours Overtime
• Weighted Average Overtime
• Tipped Overtime
• Multiple Pay Rates – Individualized or Global Rate Tables
• Workday Breakdown
• Scheduling Application

How will the Department of Labor’s Overtime Rule impact your organization and what steps should you take to ensure compliance by December 1^st? If you have any questions about this new overtime legislation or would like to see how Mosaic can help you navigate it successfully, call (303) 645-4270 or visit www.mosaices.com. 

The Ugly Truth about Affordable Care Act Compliance

Many employers do not have the systems in place to support efficient compliance with the Affordable Care Act (ACA).  Deploying the right solution is critical given the requirement that 1095-C forms need to be delivered to employees by January 31^st.  The ugly truth of ACA compliance is that it will remain painful for employers until they embrace technology that can make compliance truly efficient and accurate.

An efficient solution for ACA compliance must have four core capabilities:

1. Track the data necessary for reporting compliance:

• Group health premiums, coverage dates and, for self-funded plans, dependent information
• Compensation data (payroll)
• Time (hours worked)

2. Aggregate the data:

• If the required data lives in disparate systems (Human Resources, Payroll, Benefits, and Time Keeping) it must be aggregated to present a clear, timely, and accurate picture of ACA status in real time.  Aggregating this data is hard enough to do at the end of the year, not to mention continuously to support real-time decision making
• If employers are members of a control group (related employers that consist of more than one legal entity), data must be aggregated for the entire control group

3. Measure and analyze the data to support real-time decision making throughout the year:

• Alert the employer when employees attain or lose coverage eligibility
• Understand affordability to avoid substantial penalties for not offering affordable coverage

4. Report the required data to employees and the IRS each January for the preceding year:

• Self-insured plans must complete Section III of the 1095-C form and therefore must track and report dependent information
• Large employers (250 or more employees) must report data to the IRS electronically using the IRS AIR reporting system

Can your technology efficiently deliver on the requirements of the ACA during the 31 days of January?

Mosaic’s Workforce One platform is uniquely positioned to address ACA compliance.  Workforce One is a comprehensive workforce management system that has the Human Resources, Payroll, Benefits, and Time Keeping capabilities the ACA requires – all delivered on a single database with a single user- interface.  

If you would like to see how Workforce One can take the ugly out of ACA compliance, call (303) 645-4270 or visit www.mosaices.com.

Single Platform vs. Integrated Platform – What does that mean?

Throughout our experience as a company, we have learned how cautiously vendors tend to phrase how their solutions are “integrated” with each other or with other vendors. The way it’s marketed can look fantastic on a piece of collateral or on a website, but when it comes down to actually using the solution, it can be far different.

With the success of our last blog post “3 Reasons Why Employers Are Requiring Single Platform Workforce Management Solutions,” we thought it would be prudent to continue to elaborate on the difference between integrated and single systems. 

It is very evident that the market is moving away from the integration of disparate systems to “play nice” with each other and towards the use of single systems that are architected and designed as a cohesive suite of applications.  If you ask five different people what integration means, you’ll likely get five different answers. Instead of trying to come up with a single definition of what integration means, we want to help you navigate through the marketing fluff and show you two of the ways you can expect your solutions to work with each other.

Single Platform – This is the most ideal scenario for your company. A single platform for multiple applications SHOULD mean that this is a platform built from the ground up on one database. In saying this, there would be only one database for the data housed within all of these applications.

What does that mean and why does that matter to you?

This kind of solution enables you to have a single record for:

• An employee in the case of workforce management or human capital management
• A prospect in the case of sales and marketing, or more specifically CRM and marketing automation
• A customer in the case of a support platform and CRM

All of these would result in only one field throughout all your solutions for a last name. The biggest benefit to this is really that there is no exchange of data that needs to take place – essentially all of these solutions can act as a single application. This kind of solution essentially goes beyond any formal definition of integration where separate applications or software solutions are connected together.

Beware, though! Vendors using this phrase may be talking about an integrated platform…

Integrated Platform – An integrated platform may be branded as a “single platform” or vice versa, but these are usually yesterday’s applications cobbled together with a common or similar interface that makes it seem like a single platform. We like to call this lipstick on a pig. One way to uncover this is by asking whether or not all these solutions were built on a single database from the ground up. If they were developed separately, that should be a red flag, as what you’re evaluating is likely just an integrated platform.

It’s not bad… but it’s not the best. And with all the consumer software technology we use today, we expect the best. There has to be an exchange of data with an integrated platform between applications. The main difference between this and the single platform mentioned above is that changes made in one application likely won’t flow over to the other application simultaneously, or in ‘real-time’.

What does that mean and why does that matter to you?

• Without a single database:
  • There are multiple employee, prospect, or customer records that need to be maintained. And as a result, this could mean having to enter the same data more than once.
  • Additionally, with these separate records, this would require separate implementations, and therefore, a longer time before you’re actually up and running with your solution.
• Also, if data isn’t exchanged in real-time, it impacts the integrity of the data and you may not necessarily be able to make your decisions in real-time because you’re waiting for a scheduled data exchange between Application A and Application B.

Integration can be overwhelming when we start uncovering the level at which the integration takes place, whether it’s simply a single sign-on or a tighter, more seamless integration, a one way integration vs. a two way integration, etc.

What does this all mean??? Your best bet is to just find a single platform of applications that all reside on a single database. It’s what we’ve all come to expect from software. The only problem is one vendor can’t specialize in all of these different areas… unless we’re talking about workforce management.

Click here to learn more about how Mosaic can help your business thrive with our single-platform, single interface, and single employee record workforce management solution.

You can also visit us at www.mosaices.com and call us at 303-645-4270. We look forward to an opportunity to speak with you. 

3 Reasons Why Employers Are Requiring Single Platform Workforce Management Solutions

You’re almost guaranteed to hear on any software demonstration the word “integration”, but what does that mean? Put simply, integration means having Software A and Software B exchange data between the two, though integrations do not have to be limited to just two systems.

Companies using multiple software solutions, such as HR, payroll, and time and attendance, are now demanding that these technologies be integrated. This has forced the software developers with disparate solutions to cobble together connections between their products, while developers with solutions on a single platform are already offering real time data integration. Integration sounds nice, but wouldn’t it be even better if all of your applications existed on a single platform that has been created to work together seamlessly? The great news is that this capability already exists!

In this blog article, we thought that it would be important to talk with employers to discuss exactly why having a single system is so important for their businesses and how they have experienced the power of a single-platform solution.

1. They now know that a single-platform solution is not only available, it is affordable.

A single system suite of all the needed workforce management solutions is not a new concept in the marketplace today. In fact, they’ve been utilized for years now by the enterprise corporations that saw the benefits and could afford the high price tag that came with them. But as technology has evolved, this deeper level of functionality has been made available to small and midsized businesses (SMBs) at a price they can actually afford.

Now that these SMBs are “seeing the light” on the benefits of multiple applications on a single platform, they’re beginning to demand these fully embodied solutions as a prerequisite. Service providers without the ability to offer this are simply unable to compete with those that can, and service providers offering single-platform solutions are in a unique position to grow market share and mind share within their space.

2. Drives easier and more efficient decision making with reliable data.

Data integrity is everything. You have data for a reason; it’s going to inform decisions that you’re making in your business. If you have the same data residing in multiple places, there’s always an opportunity for data to get out of sync and for it to be wrong in one or multiple of those places. When that’s the case, and you’re consulting one of those systems, you’re pulling the wrong data and making decisions based on the wrong information.

When data takes time to flow between disparate solutions, businesses are unable to get an instant snapshot of their workforce and make decisions on the fly. Having all of your information on a single platform also helps with efficiency by removing the need for data exporting, importing, duplicate data entry, as well as separate resources, software, and multiple logins. Clients simply access one solution sharing data across all of their applications.

3. Creates a competitive advantage and helps with compliance.

Through a more efficient system with reliable data, businesses with single-platform solutions are simply able to operate at a higher level than those with disparate solutions. If you had the choice between being able to proactively manage your business on the fly as changes and obstacles occur, or having to wait a day or two in order to make reactionary changes, which would you want to use? This example shows exactly how businesses with a single workforce management solution can easily gain a competitive advantage in the marketplace.

Are you concerned about managing your Affordable Care Act (ACA) compliance? A single suit of solutions enables businesses to analyze real-time labor data and make the necessary changes to ensure they remain compliant before issues arise. Workforce management solutions such as these are the best way to manage your workforce in today’s world of employment, and we’re seeing that the ACA is especially responsible for driving the demand for single-platform solutions on the workforce management front.

Are you in need for a single-platform workforce management solution? What are some of the issues that you could see yourself living without by moving away from disparate solutions?

Please share your experiences and learn more about how Mosaic can help your business thrive with our single-platform, single database, and single user-interface.

Visit us at www.mosaices.com and call us at 303-645-4270 today!

Time and Attendance – What’s the ROI?

As we continue to hear questions regarding time and attendance return on investment (ROI), we started to think to ourselves “What is the ROI of time and attendance – Does everyone really know?

With payroll typically taking up 50-60 percent of businesses’ operating expenses, companies want to ensure that payroll dollars aren’t being wasted and that the highest return possible is achieved from that investment. This is where automated time and attendance applications, also known as time and labor management applications, come into play… But how do companies quantify the ROI of their on-premise or SaaS-based software purchase?

That’s a great question – thanks to all of you who have brought that up!

There are three core areas in which time and attendance applications return much more than what is paid for them:

1. Control and reduce labor costs

In order to achieve this, the first step is getting insight into exactly where payroll dollars are being invested. Companies need to see which employees are in and out of work – they need visibility into who’s coming or leaving early and late, or who’s absent entirely.

There are several areas of workforce management that can be improved in order to manage labor costs accordingly – here are a few big ones:

• Absence – According to Mercer, the direct and indirect costs of absence alone can make up 34.2 percent of payroll expenses. From planned absences like vacation to unplanned absences like sick time, managing absence in an automated fashion allows companies to track accrued time off accurately and make staffing adjustments to cover for absent employees.
• Overtime – Unplanned overtime can be a huge, and often unforeseen, payroll cost. By keeping tabs on employees’ timesheets and getting alerts for employees who approach overtime, companies can easily reduce this cost by finding alternative coverage for the position.
• Accuracy – There are tons of companies out there that simply pay employees for the time they’re scheduled to work. However, what if they’re continuously coming in late and/or leaving early? How about if they continuously take long lunches? They’re still being paid for that time they are not working, which is a cost that’s easily controlled. By simply automating the collection of time worked, companies can ensure employees are getting paid accurately for the time they actually work – no more, no less.
• Demand – By having the ability to manage a workforce in real-time, companies gain the ability to make staffing adjustments based on the external factors of that business – either proactively or as they happen. For example, companies should be able to plan for historically slow or extremely busy shopping days in retail. And if the forecast calls for inclement weather, and shopping is typically reduced in these instances, schedules can be adjusted accordingly.

2. Improve productivity

Another area companies can track where payroll dollars are being invested is what employees actually work on, and how much work they do. By tracking the departments, jobs, and tasks of employees, companies can get a great understanding of what’s actually being invested in with their payroll dollars. Perhaps they’ll gain insight that sales people are spending more time on administrative functions then they are on actual sales, and be able to address it accordingly from there.

Alternatively, in a manufacturing business, management should be able to track the piece work of each employee (i.e. how many widgets they can produce), which will give them insight into the most effective and productive employees they have. On the flipside, they’ll also see who the least effective employees are and can invest in training for these employees and/or open up new job requisitions to find better talent.

Time and attendance solutions also provide a great avenue to make management and administrators more productive, allowing them to spend less time on manual processes like creating schedules, approving time off, monitoring employee time, etc.

3. Minimize risk of noncompliance

There are virtually endless pieces of legislation that companies must comply with from the FLSA to the FMLA to the ACA. And if there’s one thing that can be said about non-compliance, it’s that non-compliance costs big bucks! The Department of Labor (DOL) has people employed in the agency that are solely responsible for finding non-compliant companies. If accused of non-compliance for the FMLA, for instance, the cost for a company can range from $78,000 to $150,000, and that’s just to get to trial! And then let’s say that company loses the trial, additional fees can include:

• Employee reimbursement for any monetary loss incurred
• Equitable relief
• Attorney’s fees
• Expert witness fees
• Court costs
• Liquid damages

When you think about the cost for automated time and attendance, it seems pretty nominal when you start thinking about the potential ROI. At Mosaic, we also provide an automated system that helps our clients comply with ACA requirements and reporting. Check out our video highlighting all of the capabilities that our ACA Manager can do for your business here. 

Looking for more details on this topic? Hear it from the experts and give Mosaic a call at 303-645-4270 or visit our website at www.mosaices.com

Helping Businesses Manage Overtime Costs in the Wake of FLSA Changes

You’ve likely heard a lot in recent news about the Department of Labor’s (DOL) proposed regulations that are expected to affect the Fair Labor Standards Act (FLSA) regarding new white-collar exemptions in the near future.

With minimal revisions since the FLSA was enacted almost 80 years ago, significant adjustments regarding overtime pay and minimum wage requirements have been proposed by the DOL. The DOL has proposed these updated regulations to better align with the present-day workforce and economic climate.

To put things into perspective, the current FLSA requirement states that an employee that makes at least $455 per week ($23,660 per year) either hourly or salary and who meet a duties requirement test is considered “exempt”. These exempt employees do not qualify for overtime pay. If passed, the DOL’s new regulations would require that:

• The minimum salary threshold to be $970 per week ($50,440 per year) in order to be considered exempt from receiving overtime pay.
• The salary threshold be updated annually to stay level with rising inflation and wage costs.

These new regulations would undoubtedly have a significant impact on most US businesses within the coming months. It would require employers to reassess their entire workforce classification as exempt/non-exempt, increase minimum annual wages of exempt employees, and track all hours worked by non-exempt employees. As a service provider, it is critical that you help to guide these businesses during these potential changes. By providing your expertise in conjunction with a workforce management solution, you can help your clients keep in compliance with the new FLSA regulations and control overtime costs.

You can reduce a business’ compliance risk and overtime costs by offering them a workforce management solution, complete with Time and Attendance, that accurately tracks and documents all employee hours worked, delivers proactive alerts that notify employers of employees breaching overtime, and includes insightful reporting capabilities for both ongoing analysis and proof of compliance.

In this recorded webinar, held on August 20, 2015, by ChrysMarie Suby of the Labor Management Institute and titled “Overtime Best Practices”, you’ll learn 10 helpful strategies to bring to employers for minimizing their overtime costs.

1. Define the department budget and address OT in hours & percent of Total Worked hours.
2. Identify a pattern for the use of resources developed from workload demand data.
3. Define and standardize terms & formulas with division of direct, indirect, education, orientation, and paid not worked benefit hours and FTE’s.
4. Clearly identify pay incentives, premium pay, bonuses, on-call/call-back.
5. Monitor OT for both “regular” and “EOS” or incidental occurrences & trend for use & abuse patterns.
6. Publish schedules with at least 85% of work from “core” employees in the unit.
7. Require managers to publish schedules with <5% “holes” where shifts didn’t meet target requirements.
8. Monitor for the 6 underlying drivers for OT bi-weekly & compare to specific criteria.
9. Identify a pattern for the use of resources developed from workload demand data.
10. Monitor for the Labor Management Institute’s Target Thresholds to Total Worked Hours.

To get more information on the Labor Management Institute’s 10 overtime best practices, please watch this recorded webinar.

4 Reasons Businesses Need to Be Outsourcing Workforce Management to a Local Service Provider

No matter the size, all businesses are required to manage their workforce in one way or another. Whether that’s through processing payroll, recording employee work hours, or even performing HR functions. It’s an ongoing process that has to be done promptly and more importantly, it has to be done right.

For small to mid-sized businesses, dealing with the everyday challenges of maintaining a successful operation can be stressful enough, let alone adding back office tasks to the mix. The one way for businesses to eliminate these often mundane and time-consuming tasks is to automate and outsource them to you, a trusted service provider. By offering your services and expertise in combination with an automated workforce management platform, businesses can finally get back to focusing on what they do best.

As you may know, the benefits of outsourcing workforce management functions are plentiful. However, we have included the top four reasons why outsourcing is beneficial (if not essential) to the success of small to midsized businesses.

1. Lowers business expenses by reducing labor costs.

Automating and outsourcing workforce management processes results in fewer responsibilities for a business to have to worry about. This eliminates the need for unnecessary labor, such as bookkeeping or administration and allows the business to invest their money where it really counts.

2. Helps businesses to minimize liabilities.

With constant changes in labor laws and regulations, and the intricacies of processes like tax filing, it becomes nearly impossible for smaller businesses to stay abreast of every detail involved. Noncompliance can become a huge problem for businesses, costing them thousands of dollars in penalties and legal fees. However, businesses who outsource these processes can breathe a sigh of relief knowing that their service providers stay well-informed with all current laws and regulations to help them remain in compliance.

3. Increases overall workforce productivity.

Outsourcing workforce management processes enables staff to concentrate on the core of their business’s success by freeing up their time from unnecessary tasks. With increased flexibility, a business can worry less about making sure things like payroll are processed on time and focus more on strategic initiatives that can improve their bottom line.

4. Allows businesses to take advantage of service providers’ expertise and knowledge.

There are no better experts in the workforce management field than skilled, regional service providers. Equipped with tools and other valuable resources, they serve as local specialists to their clients. Automated workforce management platforms provide a great solution for routine tasks but service providers offer an extra advantage by giving professional insight and tailoring solutions to the specific needs of a business.

It’s hard to imagine businesses not seeing the value of outsourcing and automating workforce management functions. It’s cost-effective, reliable and better yet, it’s stress-free. 

To get further insight from experts on the benefits of outsourcing, give us a call at 303-645-4270, visit us at mosaices.com or email us at info@mosaices.com. We are excited for the opportunity to talk with you and see if there are ways to help your company thrive.

Is your Company at Risk? 6 Factors used by the DOL to Classify your Sub-contractors as Employees

"The Department of Labor's Wage and Hour Division continues to receive numerous complaints from workers alleging misclassification, and the Department continues to bring successful enforcement actions against employers who misclassify workers," said a detailed document issued July 15.

The Administrator's Interpretation 2015-1 is from David Weil, who heads the Wage and Hour Division (WHD).  It elaborates on positions the agency has taken earlier on the employee versus independent contractor issue, citing many federal courts' interpretations of the Fair Labor Standards Act (FLSA).

Noting that the matter of improper classification requires a "multi-pronged approach," the WHD is working with the IRS and states to tackle misclassification.

"Economic Realities Test"

The definition of an employee is determined by six factors based which constitute an "economic realities test." At the heart of the factors is "whether the worker is economically dependent on the employer or in business for him or herself." The Administrator's Interpretation also states that, while all of the factors must be considered in each case, no one factor is determinative of whether a worker is an employee — not even the "control" factor (See "What is the Nature and Degree of the Employer's Control?" below.)

The WHD warns against applying the factors "in a mechanical fashion." Rather, they should be applied "with an understanding that the factors are indicators of the broader concept of economic dependence."

The Six Factors

Here are the six basic factors and how the WHD views their scope (though the agency cautions that some courts may consider other factors).

1. Is the Work an Integral Part of the Employer's Business?

The more essential the work is, the more likely the worker is to be economically dependent on the employer. It doesn't matter how many workers perform a particular task.

WHD uses the example of a call center. Answering calls is integral to a call center's business "even if it is performed away from the employer's premises, or at the worker's home."

Similarly, the work of a carpenter framing houses for a homebuilder is integral to the business. In contrast, work performed by a software developer on behalf of the same company on a program that "assists the company in tracking its bids, scheduling projects and crews" would not be integral to the business.

2. Does the Worker's Managerial Skill Affect His or Her Opportunity for Profit or Loss?

This gets at the question of whether the individual is truly running a business. For example, "a worker's decision to hire others, purchase materials and equipment, advertise, rent space, and manage time tables may reflect skills" that impact profit or loss, the WHD document states. If the worker's only way to affect earnings is deciding how many hours to work, that would indicate an employment relationship.

The document illustrates the principle by describing a worker who provides cleaning services for corporate clients. The individual "performs assignments only as determined by a cleaning company, does not independently schedule assignments, solicit additional work from other clients, advertise his services or endeavor to reduce costs." This appears to be an employment relationship.

On the other hand, if the worker does tasks such as negotiating contracts and deciding which jobs to perform and when, his exercise of such managerial skills is indicative of an independent contractor.

3. How Does the Worker's Relative Investment Compare to the Employer's Investment?

"The investment of a true independent contractor might ... further the business's capacity to expand, reduce its cost structure, or extend the reach of the independent contractor's market," the document states. WHD again illustrates the principle with an example from a cleaning business.

A company provides insurance, a vehicle and "all equipment and supplies" for the worker, does advertising for her and finds clients for her, yet classifies her as an independent contractor. Based on the size of the investment of the company, the company is likely her employer. Even if she occasionally brings some of her own preferred cleaning supplies, her investment must be compared to the company's investment.

If, instead, the worker "invests in a vehicle that is not suitable for personal use and uses it to travel to various work sites ... rents his or her own space to store the vehicle and materials ... [and] advertises and markets her services and hires a helper for larger jobs," that would support independent contractor status.

4. Does the Work Performed Require Special Skill and Initiative?

"A worker's business skills, judgment, and initiative, not his or her technical skills, will aid in determining whether the worker is economically independent," declares the WHD document. How does that play out?

The WHD offers the example of a "highly skilled" carpenter who provides services for a construction company. He doesn't choose his job site, the sequence of his work, order additional materials "or think about bidding the next job." This fact pattern doesn't support independent contractor status.

In contrast, a carpenter who "provides a specialized service for a variety of area construction companies, for example, custom handcrafted cabinets that are made-to-order, may be demonstrating the skill and initiative of an independent contractor," the WHD opines.

5. Is the Relationship between the Worker and the Employer Permanent or Indefinite?

Naturally, the more "permanent" the relationship appears, the more it looks like an employment relationship. But "permanent" doesn't have to involve years.

"Even if the working relationship lasts weeks or months instead of years," the document states, "there is likely some permanence or indefiniteness to it as compared to an independent contractor, who typically works on one project for an employer and does not necessarily work continuously or repeatedly for an employer."

However, the WHD cautions that the lack of permanence doesn't necessarily indicate independent contractor status. The key "is whether the lack of permanence or indefiniteness is due to operational characteristics intrinsic to the industry." For example, sporadic part-time work assignments provided directly by companies or staffing agencies doesn't preclude an employment relationship.

6. What is the Nature and Degree of the Employer's Control?

This assessment should be made "in light of the ultimate determination whether the worker is economically dependent on the employer, or truly an independent businessperson," according to the document. The worker "must control meaningful aspects of the work performed such that it is possible to view the worker as a person conducting his or her own business."

Moreover, that control can't just be theoretical. "The worker must actually exercise it" the WHD states.

Labels Don't Matter

The determination of employment status depends on the economic realities "and not the label an employer gives it." Just because a business asks a worker to sign a contract stating he or she is an independent contractor, and issues a Form 1099-MISC, doesn't mean the individual isn't an employee.

"This form simply indicates that the employer engaged the worker as an independent contractor, not that the worker is actually an independent contractor under the FLSA," the document states.

In light of the complexities of determining employment status the wise course of action would be to consult a legal professional if you are uncertain about how to classify the employment relationship.