Navigating Wage & Hour Laws: Insights from an Employment Law Expert

May 31, 2023

Guest Scott Horton provides an overview of employee classification law in webinar

Navigating Wage & Hour Laws: Insights from an Employment Law Expert

Small business owners constantly face challenges in the form of wage & hour laws. These laws can be complex, and noncompliance (even by accident) can be costly. On May 3, NFIB hosted special guest Scott Horton, a lawyer, author, and employment law expert to answer often asked questions about wage & hour law. Scott discussed employee compensation, minimum wage, overtime, and the distinction between exempt and non-exempt employees. These topics can vary significantly depending on both state and federal law. “Why does worker classification matter?” Horton began. “Ultimately, it comes down to money. Whose money? Well, initially it’s the employer’s money. Then the question is how much of that is going to get paid to people who are working for your business? And related to that is a very important question of how much money is going to be sent off to various government entities, which could be a state or local taxing authority, or the IRS, or various other government-related entities. Sometimes that actually means insurance companies, because you’re obligated in most cases to have workers’ compensation insurance or to contribute to unemployment insurance.” Regarding the difference between employees and independent contractors, Horton explains employees are individuals who work for a company under the employer’s control, receive compensation such as wages or salaries, and are subject to withholding taxes and benefit policies. Independent contractors, on the other hand, are hired to achieve specific outcomes and have more control over how they complete the work. They are typically compensated with fees rather than wages and are responsible for their own taxes and insurance. Several different tests are used to determine worker classification, and Horton gives a broad overview of them: the common law test, the economic realities test, and the ABC test. He notes that each government agency or jurisdiction may apply distinct tests, which could lead to multiple classifications for different purposes. Regardless of which test is used, Horton thinks they boil down to three main factors. “First, is this person in business for themselves? If he or she is working just for you and not for anyone else, if they haven’t incorporated or formed their own LLC, and if they don’t advertise or market themselves then it doesn’t really look like they’re in business for themselves. It’s more likely that you should treat that as an employment relationship.” “Secondly, do they offer to provide their services to others? You can have independent contractors who only do work for you, but that’s looking more like an employment relationship on average. And then again, are they out there at least trying to get work from other companies in addition to yours? Are they available to do so? Or maybe your contract is for a specified period of time during which they couldn’t take on other projects, but they’re open and interested in getting projects after the fact?” “And the final factor is why wouldn’t you treat it as an employment relationship? All the government agencies and courts are going to presume employment as the default in most cases. So, everything else we’re about to talk about in this presentation is going to be presumed to apply, unless you as the employing entity can show that no, this person is not an employee, they’re an independent contractor.” He also briefly addresses two other categories besides employees and independent contractors: student interns and unpaid volunteers in nonprofit organizations. They use their own test, the primary beneficiary test, to determine if student interns should be treated as employees, considering who benefits the most from the internship. Unpaid volunteers in nonprofit organizations are generally permissible under the Fair Labor Standards Act, but once payment is provided, minimum wage and overtime obligations may arise.

After his overview of employee classification, Horton covered topics such as calculating overtime and travel time correctly, updates on minimum wage law, recordkeeping best practices, and more. He also answered tax questions from the audience.

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