United States Department of Labour Unveils New Proposed Rule Making It Difficult for Workers to Be Classified as Independent Contractors
Karma Management has now become Karma Management Global Consulting Solutions Pvt. Ltd. which was incorporated in the year 2004, having now completed almost 18 years of its existence.
As late as April 2021, Karma Global took a very bold step of venturing into foreign shores in terms of shoving up its business in countries like US, UK, UAE, Canada, Philippines and South East Asia.
It has already made its mark in terms of providing excellent services in the areas of payroll, outsourcing, recruitment and talent acquisition, facility management services and regulatory compliances including employment contracts in these foreign countries as well.
In fact, the CVO and MD, Pratik Vaidya of Karma Global was selected by SME Forum recently to lead a Select US Summit where he took along a delegation of over hundreds of SME Members for business discussions with the authorities in the States as well as with the entrepreneurs and Innovators of many countries who were present in this forum.
Just last month, Pratik Vaidya, went on a Europe tour, participating along with Advantage Austria and brainstorming on the ecosystem of Start-ups in Salzburg, Austria.
Karma Global thus entails the compliances of global clients in these countries as well, and in keeping with the global scenario, it does keep a very hard track on the status of global compliances all around the world and especially so, it keeps an update on what is happening around the world as far as people, wages, work, benefits, employment contracts, negotiation and unions are concerned across the globe.
Let us first see the Essential Protections for Essential workers in the U.S.
The Wage and Hour Division’s Essential Workers – Essential Protections Initiative shares information with essential workers across the United States about their rights to fair labour standards and respect in the workplace.
The goals of the Essential Workers – Essential Protections Initiative are to:
- Provide outreach and education to protect essential workers and ensure they know their workplace rights
- Reintroduce the Wage and Hour Division as a trusted resource to workers, employers, unions, employer associations and other stakeholders.
- Collaborate with strategic partners to reach the most vulnerable at risk workers
- To help reach these goals, the Wage and Hour Division offers the resources on common issues that essential workers and their employers face in several industries throughout the country.
Let us also see what all covers the Wages and the standard Fair Labour Act in U.S.
The Fair Labour Standards Act (FLSA) establishes minimum wage, overtime pay, record keeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. Covered non-exempt workers are entitled to a minimum wage of not less than $7.25 per hour effective July 24, 2009. Overtime pay at a rate not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek.
- FLSA Minimum Wage: The federal minimum wage is $7.25 per hour effective July 24, 2009. Many states also have minimum wage laws. In cases where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage.
- FLSA Overtime: Covered non-exempt employees must receive overtime pay for hours worked over 40 per workweek (any fixed and regularly recurring period of 168 hours – seven consecutive 24-hour periods) at a rate not less than one and one-half times the regular rate of pay. There is no limit on the number of hours’ employees 16 years or older may work in any workweek. The FLSA does not require overtime pay for work on weekends, holidays, or regular days of rest, unless overtime is worked on such days.
- Hours worked: Hours worked ordinarily include all the time during which an employee is required to be on the employer’s premises, on duty, or at a prescribed workplace.
- Record Keeping: Employers must display an official poster outlining the requirements of the FLSA. Employers must also keep employee time and pay records.
- Child Labour: These provisions are designed to protect the educational opportunities of minors and prohibit their employment in jobs and under conditions detrimental to their health or well-being.
Misclassification continues to deny workers’ rightful wages; hurt businesses
A look at the old rule:
The current rule on independent contractor status, adopted in January 2021, simplified the traditional multi-factor test by stressing that two “core” factors – a worker’s control over their work, and their opportunity for profit or loss – were paramount in making an independent contractor determination. Although courts could still consider three other factors when determining a worker’s status (e.g., skill required for the work, the degree of permanence of the working relationship between the individual and the potential employer, and whether the work is part of an integrated unit of production), the first two “core” factors would almost always be dispositive of an employee’s status.
A look at the new proposed rule:
WASHINGTON – The U.S. Department of Labour published a Notice of Proposed Rule Making shortly to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labour Standards Act.
The proposed rule would provide guidance on classifying workers and seeks to combat employee misclassification. Misclassification is a serious issue that denies workers’ rights and protections under federal labour standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at-large.
The NPRM proposed a framework more consistent with longstanding judicial precedent on which employers have relied to classify workers as employees or independent contractors under the FLSA. The department believes the new rule would preserve essential worker rights and provide consistency for regulated entities.
“While independent contractors have an important role in the economy, it has been seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” said Secretary of Labour, Marty Walsh. “Misclassification deprives workers of their federal labour protections, including their right to be paid their full, legally earned wages. The Department of Labour remains committed to addressing the issue of misclassification.”
Specifically, the proposed rule would do the following:
- Align the department’s approach with courts’ FLSA interpretation and the economic reality test.
- Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.
- Ensure that all factors are analysed without assigning a predetermined weight to a particular factor or set of factors.
- Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer’s business, is also included.
- Assist with the proper classification of employees and independent contractors under the FLSA.
- Rescind the 2021 Independent Contractor Rule.
The department is responsible for ensuring that employers do not misclassify FLSA-covered workers as independent contractors and deprive them of their legal wage and hour protections.
Misclassification denies basic worker protections such as minimum wage and overtime pay and affects a wide range of workers in the home care, janitorial services, trucking, delivery, construction, personal services, and hospitality and restaurant industries, among others.
Before publication of today’s proposed rulemaking, the department’s Wage and Hour Division considered feedback shared by stakeholders in forums during the summer of 2022 and will now solicit comments on the proposed rule from interested parties.
The division encourages all stakeholders to participate in the regulatory process. Comments, which must be submitted from Oct. 13 to Nov. 28, 2022, should be submitted online or in writing to the Division of Regulations, Legislation and Interpretation, Wage and Hour Division, U.S. Department of Labour, Room S-3502, 200 Constitution Ave. NW, Washington, DC 20210.
CONCLUSION:
Key Takeaways for Employers
- The proposed rule has parallels to California’s ABC test, which presumes that most workers are employees, not independent contractors, especially where they don’t perform “work that is outside the usual course of the hiring entity’s business.” Under the DOL’s proposed rule, it is likely to become much harder for businesses to classify ordinary workers as independent contractors.
- The new rule does not affect how states determine who qualifies as an independent contractor. The rule also would not redefine who qualifies as an independent contractor under the Internal Revenue Code, the National Labour Relations Act, or other federal laws. Businesses will need to ensure that they are complying with all applicable laws when evaluating a worker’s status.
- Businesses should consider evaluating the status of any independent contractor before the end of the year to make sure they are properly classified under the proposed rule. This will put businesses in the best position to avoid hefty penalties if the Department adopts the proposed rule and begins policing misclassification before the first quarter of 2023.
Earlier this month, we saw in Canada a beautiful thing to happen in the light of the Canada’s Minister of Employment’s statement reproduced below:
“Everyone deserves to work in dignity, in safety, and in health. With these changes, the Canada Government is strengthening protections for temporary foreign workers. These individuals come to Canada and work for Canadian businesses, and help drive the Canadian economy forward. We have a responsibility to ensure they are protected and respected.”
The Government of Canada takes its responsibilities to protect temporary foreign workers (TFWs) very seriously. Ensuring the health and safety of these workers while they are in Canada is a key priority, and the Government is taking concrete action to better support them.
Karma Global while dealing with all such issues and cases, always takes the approach to act trustworthily and to be compliant with the laws of the land.
Karma Global always advises its clients to be on the good side of the law and to abide by the same. In this respect, it offers a plethora of excellent services in terms of documentation compliance and validity of licenses for running the business and also supports establishments and union afflicted workers to take a just stand on issues, in the company’s interest and not on trivial grounds just for the sake of it, to show the level of aggression.
The respect for all fundamental principles and rights at work (FPRW), including freedom of association and the right to collective bargaining, is an essential foundation of the ILO and key to successful policy and decision making. As the world of work is changing at an ever increasing pace, strong, influential and inclusive social dialogue is, and will be, a key vehicle to shape the world of work that we want.
Karma Global’s integrated regulatory compliance services runs on an expert machinery that is agile and consistent and is simplified for the global clients in a manner that they can easily grasp the subject matter as against the tangled complexity and risk, which gives the global clients the power of confidence and control.
Karma Global is well aware that the lengthening list of supranational regulations is burden enough for any multinational business, while each jurisdiction implements its regime with its own unique local twists, creating a maze of localised regulations.
Also, it is universally known that compliance timelines are always tighter given the stipulated dates. Sometimes simple oversights on the part of the employers can threaten to damage reputations and jeopardize operations and therefore, such Organizations like Karma Global make it a point to reach out to employers and establishments struggling with compliances in order to keep pace with them so that staying compliant and in good standing with the Government’s rules, across the entire operational footprints is made simpler and easy by Karma Global.
We have the reach and resource to be your global partner in regulatory compliance management, easily transforming all the regulatory uncertainty into clarity and control.
Our global regulatory health checks, conducted by our teams of local experts, can evaluate your current regulatory standing across every market and solve the country-specific challenges they find.
With our finger permanently on the regulatory pulse – monitoring supranational regulatory schemes and the innumerable pieces of local legislation that give them the force of law – we make sure there are no surprises.
We expertly classify, register, document, assess, review and report across all your regulatory obligations, leaving you free to focus on the business end.
Our deep, country-by-country knowledge, expressed through a 120-strong network of local offices, makes light work of the most intricate local and global reporting obligations.
For clients facing urgent one-off regulatory challenges – perhaps a major cross-border KYC exercise for a time-critical international deal – we can scale-up quickly and easily thanks to a flexible structure and global resource base.
Proprietary blog of Karma Global
This blog has been collated and compiled by the internal staff of Karma Global with the knowledge and expertise that they possess, for its monthly newsletter Issue 06 of December 2022 and in case of specific or general information or compliance updates for that matter, kindly reach out to the
Marketing Team – Kush@karmamgmt.com / yashika@karmamgmt.com