Businesses Grapple With New Federal Guidance On Worker Classification
Recent Federal Department of Labor guidelines have been affecting businesses across the US, large and small. The Labor Department’s Wage and Hour Division administrator David Weil on July 15 issued guidelines on worker classification, known as the economic realities test. Weil said, “Ultimately, the goal of the economic realities test is to determine whether a worker is economically dependent on the employer (and is therefore an employee) or is really in business for him or herself (and is therefore an independent contractor),” the Arizona Republic reported. Weil added, “Misclassified employees are often denied access to the critical benefits and protections they are entitled. Misclassification also generates substantial losses to the federal government and state governments in the form of lower tax revenues, as well as to state unemployment insurance and workers’ compensation funds.” According to Arizona employment attorney Julie Pace, worker misclassification in the state “dates back to the recession.” Currently she says she has “35 cases of misrepresentation” pending. The Republic noted that 16 Arizona and Utah companies in the construction industry in April had to “pay $600,000 in back wages and fined an additional $100,000 for misclassifying workers.” The Republic noted that Weil recently visited Phoenix to discuss labor issues with the business community and attorneys, including Pace.
What Happens Next
Though the Federal guidance has yet to take effect, the Republic noted that it will be “included as part of the updated Fair Labor Standards Act in the Department of Labor’s 2016 budget plan.”
What This Means For Small Businesses
Phoenix-area small business owners may see increased pressure to classify workers as employees under the Department of Labor’s worker classification guidance. This could create burdensome labor costs for many business owners in the city.
Additional Reading
NFIB previously covered the Department of Labor’s recent Federal worker guidelines.
Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.
