On August 11, 2017, Governor Cooper signed into law the Employee Fair Classification Act (S.B. 407). Many in the construction industry have supported this move, feeling that the misclassification of workers by their less scrupulous competitors was making it difficult for them to compete. Companies that misclassify employees and independent contractors can save more than 20% on their labor costs.
The new act provides a way for the state to receive complaints that employees are being misclassified as independent contractors by creating the Employee Classification Division within the North Carolina Industrial Commission. The Employee Classifications Section’s website states that:
Upon receiving the complaint for employee misclassification the Director will provide this information to the North Carolina Department of Labor, North Carolina Industrial Commission – Compliance and Fraud Investigative Division, North Carolina Department of Commerce - Division of Employment Security, and North Carolina Department of Revenue where each separate agency shall conduct independent investigations to determine whether violations of their operating statutes has occurred. If determined there has been a violation of any operating agency statute, each agency will ensure the necessary enforcement actions under the respective statutes.
As such, should a complaint be made, independent investigations will be made into the company being complained of by several different North Carolina governmental agencies and employers could be facing multiple fines from multiple state agencies. Also, employers are now required to post notices including the following information:
- Workers must be treated as employees unless they are independent contractors;
- Workers who believe that they have been misclassified have the right to report the alleged misclassification to the Employee Classification Section; and,
- The physical and email addresses and telephone number where alleged misclassifications can be reported.
To avoid any issues with the Employee Classification Section, employers must ensure that they are correctly classifying employees as either employees or independent contractors. While the classification is determined case by case and depends a great deal on the specific facts surrounding each individual’s employment, here are some basic considerations:
- Is the worker guaranteed to get paid, no matter the outcome of the project?
- Does the worker use his or her own tools or equipment?
- Does the worker work for more than one firm or business at a time?
- Does the worker offer his or her services to the general public?
- Do you have the right to give the worker instruction about when, where, and how to work?
- Did you train the worker to do the job in a particular way?
- Must the worker do the work him or herself? Or is the worker free to hire assistants? If assistants are hired, who pays them?
- Do you set the worker’s work hours?
- Must the worker spend all of his or her time on your job?
- Must the individual work on your premises?
- Do you pay the worker hourly? Weekly? Monthly? By the job?
- Can you fire the worker and/or can the worker quit without being subject to a breach of contract lawsuit?
That is not an exhaustive list, and no one question will determine whether a worker should be considered an employee or an independent contractor. However, if in answering those questions, you are finding that you have a lot of control over how the worker performs his or her work, then it is likely that they should be classified as an employee and not an independent contractor.
If you find yourself questioning whether your worker should be classified as an employee or an independent contractor, or if you find yourself being investigated by the Employee Classification Section, please give Jesson & Rains a call to assist you in the matter.