According to the DOL’s announcement, the Independent Contractor Rule—as instituted by the Trump administration on January 6, 2021—would have been inconsistent with the purpose of the Fair Labor Standards Act (FLSA). As a result, the rule was rescinded, and no changes to the current state of independent contractor classifications are anticipated in the coming months.

How to Classify Your Independent Contractors: A Case Study

So what is the importance of this recent update—and how will it impact businesses moving forward? Broadleaf’s legal team weighs in:

Trump administration’s rule change

During the waning months of the Trump administration, the DOL fast-tracked a newly endorsed independent contractor evaluation test that examined workers based on two factors. According to the National Law Review, independent contractors were to be evaluated based on (1) the level of control the individual has over his/her work and (2) the opportunity for profit or loss due to their own personal investment. This new evaluation was supported by the greater business community, as it was easier to classify workers as ICs.

Repeal of the focused economic-realty test

While the DOL under President Biden has publicly stated that it does not plan to issue a new independent contractor rule in the coming months, it is known that President Biden supports an “ABC” test similar to the one utilized in California. In this state—along with other stringent jurisdictions like Illinois, Massachusetts, and New Jersey—the following factors must be met for a worker to be classified as an IC:

• The worker is free from the control of the hiring entity in connection with the performance of the work;
• The worker performs tasks that are outside the usual course of the hiring entity’s business; and
• The worker is routinely engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Remain compliant with financial and co-employment regulations with Broadleaf’s ICC services.

Impact of re-establishing the status quo

The decision by the DOL to repeal the Trump administration’s Independent Contractor Rule affirms their position that protecting worker rights is a top priority. Rather than continuing to face looming uncertainty about how the Biden administration would handle the rule, the administration’s action reaffirms the status quo that existed prior to January 2021 in relation to independent contractors.

The impact on businesses? The primary impact of this recent DOL decision lies in increased labor costs for businesses. While FLSA minimum wage and overtime laws do not cover independent contractors, they do apply to all employees. Additionally, employers offer benefits like paid time off and health insurance to direct employees, which add to labor costs. It will also prove more challenging for businesses to terminate employment with a direct employee versus an independent contractor, so there is less flexibility in scaling your workforce.

The impact on independent contractors?  Workers who prefer to be freelancers and ICs will lose the advantages of claiming IC status, which include more flexible work schedules, greater control over their work product, tax benefits for business expenses, and oftentimes higher compensation to atone for not receiving employee benefits.

Summary

Although businesses may have financial and business reasons to classify workers as independent contractors—and an increasing number of workers also prefer to work as freelancers—the DOL’s new stance will make it challenging to do so. The Biden administration has pledged to stand behind workers and support the provision of benefits. Additionally, many states have IC tests more restrictive than and essentially superseding the FLSA’s requirements. Moving forward, look for more states to implement employee-friendly worker classification tests similar to those found in California that create difficulties for employers to utilize the skills of independent contractors.

Learn about the benefits of independent contractor compliance services from Broadleaf.

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The situation.

The National Labor Relations Board (NLRB) recently overturned a 2014 decision that “made classification as an independent contractor harder to achieve.” Instead, the NLRB is returning to a common-law test that helps differentiate employees from independent contractors. In other words, the 2014 test it out, and the common-law test is back in.

The history.

In 2005, an airport shuttlebus service employed a group of drivers who were classified as “employees.” But when the company changed its business model, it required its drivers to sign a one-year deal that reclassified themselves as “franchisees,” or independent contractors. Later, when the drivers attempted to unionize—they couldn’t. Hence the problem with worker classification.

The challenge.

Discrepancies among worker classification are challenging the relationship between a business and its workforce. And because different classifications mean different tax, workers’ comp, discrimination, leave, and unemployment laws—an organization must be able to properly differentiate between the two. Could the common-law test do the trick? The NLRB was determined to find out.

The solution.

To apply the common-law test to the shuttlebus case, the NLRB asked the following questions:

• How does each person perceive this business relationship?
• For how long has each person been working?
• Who is sourcing the tools and providing the work environment?
• Are workers getting paid for the job they’re doing or the hours they work?
• Is anyone required to work under the supervision of another?

While “there is no shorthand formula” to identify workers, asking these questions proved to be part of the solution.

The result.

The answers to these questions seemed to suggest independent contractor status, and the NLRB ruled that “employers should use common-law factors alone” (such as those listed above) “to determine who is an independent contractor.” While other considerations ought to be made as well, the board concluded that “all the incidents of the relationship must be assessed and weighed with no one factor being decisive.”

The NLRB rejected the 2014 decision in favor of its common-law test (combined with other factors), a decision that is likely to result in many more independent contractors in 2019 and beyond.

What’s the point?

As Smith points out, the showdown between employees and independent contractors is “where so many companies just get things wrong.” Smith cautions Human Resources departments to be at the forefront of this initiative, but as industry experts, we know that such a task is easier said than done.

An important note from our Legal Department.

Please note that this is only one of numerous tests employed by a never-ending list of state and federal agencies (few of which are identical) to determine the status of individuals (employee versus IC). The application of this particular definition is limited to the folks who can seek redress under the National Labor Relations Act (NLRA). For example, things like who may unionize or bring unfair labor practice charges. Unlike employees, independent contractors are not protected by the NLRA.

Broadleaf is here to help!

Thankfully, Broadleaf Results is a better way to manage your workforce. Do you need a help handling independent contractor compliance? Contact us today! In the meantime, don’t forget to follow us on Twitter, LinkedIn, and Facebook.

The post How to Classify Your Independent Contractors: A Case Study appeared first on Broadleaf Results.

Let’s take a look at three states that are trending in IC law news.

California: New IC laws are complicated.

California’s Assembly Bill 5, otherwise known as AB5, is “straining the relationship between independent contractors and the companies that hire them.”

This, according to a conversation between Beverly Hallberg of the Independent Women’s Forum and Ellie Bufkin, a freelance writer and senior contributor to The Federalist, is already making a significant impact on the gig economy. Here are some key takeaways:

• AB5 took effect on January 1, 2020
• Stemmed from a case that “attempted to redefine an independent contractor” in California
• New rule: solo independent contractors who do not meet one of the few “professional” exceptions delineated in the statute must be classified as employees to perform their duties
• Redefines how much work a freelancer can do without having to be hired by their client
• “It’s taking away the freedom to work for millions of Californians who depend on having a stay at home schedule, a flexible part time schedule.”
• Offers benefits, such as paid leave and benefits, but eliminates freedom of flexibility
• Affects freelancers all over the country; California-based organizations have been forced to sever ties with freelancers from all over the United States

New York: ICs and freelancers have rights, too.

On the opposite coast, new IC laws seem to be having a more favorable impact on freelancers and independent contractors. Under the New York City Human Rights Law (NYCHRL), freelancers and ICs “now have the same protections against discrimination, harassment and retaliation.”

According to these insights by Bloomberg Law, here’s what’s happening:

• Freelancers and ICs are now protected from discrimination and harassment in the workplace, can file complaints with the NYC Commission on Human Rights
• Freelancers and ICs “have the right to receive reasonable accommodations for needs related to disabilities, pregnancy, lactation, religious observances, and status as victims of domestic violence, sexual offenses, or stalking”
• Hiring entities can no longer ask about an applicant’s criminal record before making a job offer, whether it’s in ads, applications, or during job interviews
• Hiring entities are prohibited from obtaining information about an applicant’s salary and/or credit history
• Contractors must complete annual sexual harassment prevention training if their employer has 15 or more workers, among other factors

New Jersey: Walking a fine line between New York and California.

Across the river in New Jersey, Governor Phil Murphy signed some employee misclassification legislature that aims to “protect employees who are misclassified as independent contractors” and ICs who are “improperly treated as employees. While this is good news for workers, some business leaders claim it will raise their costs.

According to this business news article published by nj.com, the new laws will have the following effects:

New Jersey employers will be:

• Penalized for intentionally misclassifying employees
• Required to post notices describing misclassification
• Subject to stop-work orders who violate wage, benefit, or tax law
• The State Department of Treasury can no longer share tax info with Labor and Workforce Development
• Contractors and employers are now equally liable for evading tax laws
• The legislature is designed to keep “unscrupulous contractors” from “cheating their workers out of hard-earned wages and benefits in order to undercut the competition and increase personal profits”
• Does not redefine employees and ICs like California does, due to an outcry from New Jerseyan freelancers, though this bill could still be passed

For more total talent insights, check out our Resources Page.

And don’t forget to follow Broadleaf on Twitter, LinkedIn, Facebook, and Instagram!

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What did we learn? What are HR and procurement pros talking about? Well, we already know that total talent management (TTM) solutions are dominating the conversation as a holistic workforce solution—but when it comes to specific services that teams are looking for, here are three that people are talking about.

1. Direct Sourcing
Take a bite out of traditional recruitment process outsourcing (RPO) and you get direct sourcing services: a third-party solution with an in-house feel. Direct sourcing is when the client, or the MSP, uses its ATS and various talent pools to find temporary labor.  That labor is then routed to a payroll provider, which acts as the employer of record. To paraphrase a perspective from our CWS panel: “We have no internal recruiting organization. That’s why we needed RPO and admin capabilities.”

With Broadleaf, we customize RPO according to your needs—we work alongside your team to customize talent solutions that help you recruit the people you need, when you need them. With proven adaptive sourcing models, we’ll manage all of, half of, or just some of your internal sourcing functions. It’s your call.

2. Payrolling
A good number of exhibitors at the conference were dishing out payrolling services as a standalone service to HR and procurement teams. While this is a reasonable strategy, it fails to acknowledge the cohesion needed between both departments. As we heard from our panel, “We had a highly decentralized organization, but MSPs allowed us to develop a relationship between Procurement and HR.”

Broadleaf’s MSPs (managed service programs) are specially designed to help you source candidates, consolidate invoicing, manage contracts, and more—all as a single service. With all your HR and procurement needs in the same place, you can reach peak efficiencies.

3. IC Compliance
IC compliance was another hot topic among vendors wheeling and dealing at the CWS Summit, and for good reason. Keeping tabs on your independent contractors can save you thousands of dollars come tax time—but sometimes a more flexible statement of work (SOW) and procurement management solution is the better option.

Why? How? With SOW services, you get a standard process for tracking and managing independent contractors and suppliers. That means unlimited visibility of all your contract developments in real time, a single system of record for all non-direct employees, and a standardized approval process at your disposal. Paired with a vendor management system (VMS), SOW is more than just IC compliance—it’s a symbiotic, streamlined solution.

One of our panelists said it best: “Moving ICC to SOW model has allowed us to reduce the number of invoices—our PO process is more streamlined. Down 60% in volume of POs.”

Sure, these three services can be effective on their own. But when you put them under the same umbrella, or TTM strategy, they are even more effective. Why take one or two management services from this company or that? Instead, get your hands on a complete suite of total talent management solutions from Broadleaf Results.

For more insights about the global workforce and how to manage it, check out our Resource Center. And don’t forget to follow us on Twitter, LinkedIn, Facebook, and Instagram!

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As it turns out, yes!  The Tax Cuts and Jobs Act (TCJA) will apply to so-called “pass-through” income until the law expires in 2025. This measure was intended to promote hiring and investment by small business owners, but applies to anyone who works for themselves, including partnerships, S corporations, and sole proprietorships. It allows a freelancer to remove 20% from the income reported to the IRS, even if that freelancer takes the standard deduction—now doubled to $12,000 for single filers. How much an individual or couple will save is determined mostly by his, her or their yearly income.

That’s big.  20% of freelancer or business income won’t count toward total taxable income. One need not even freelance full-time to claim the benefit; even if one’s main income is derived from a salaried job, any side income should be eligible for special tax treatment.

There is a call, however, to ensure that wealthy, self-employed professionals who aren’t likely to do much hiring or investing won’t receive the same hefty tax cut. For example, the law does not apply to workers in service fields such as healthcare, accounting, or law. Another important distinction is that workers who appear to be freelancers, yet are paid as employees through an outsourcing agency, will not be eligible for the TCJA benefit. Many companies misclassify employees as contractors, because it makes them cheaper to use. Labor advocates worry the TCJA will encourage more employers to use the new tax benefit to entice employees into this false status, generating more legal violations.

Broadleaf offers programs that identify bona fide independent contractors and provide classification assistance per IRS standards. In addition, Broadleaf:

• Allows organizations to proactively stay ahead of new state legislation
• Ensures proper documentation with ICs, e.g., confidentiality agreements, certificates of insurance, debarment status, confirmation of eligibility to work in the U.S., etc.
• Offers tools to streamline approvals and payments against deliverables and project milestones
• Reduces chances of a government audit

Freelancers are looking forward to the new 20% benefit, but remember that ICs must be properly classified. We’re here to help.

The post 2018 Tax Overhaul Fuels Gig Economy appeared first on Broadleaf Results.

Securing the talent needed for productivity and growth remains a challenge, but the methods behind work procurement have evolved.

Around 300 B.C., the first known large-scale organization of “work” was observed. During that time, the development of unique skillsets was born from necessity and influenced by both available resources and engagement of said resources. Work was organized based on a person’s abilities, and we didn’t have wide ranging labor classifications.  Form followed function, one might say.

During the 1800s and 1900s, the focus shifted as employer/employee relationships crystallized, and employers sought different kinds of resources to mitigate business risks and costs. With the industrial revolution, we saw the formation of unions, and freelancers, independent contractors, and temporary workers found footholds in the modernizing workforce. We saw function following form.

Today, advancing technology (together with other factors such as unemployment rates, talent shortages, millennial preferences, and healthcare/retirement packages) continues to evolve the talent landscape.  That evolution is bringing us back to a world in which form can follow function.  Technology is allowing companies to more readily align direct staff through RPO, contract employees through staffing companies, ICs and freelancers via management systems, and even SOW vendors.

But there is an elephant in the talent landscape. The elephant is the operational implication.  How does a company organize—and even harmonize—all of these processes across historically separately-owned HR and Procurement functions?

Total talent management organizes the workforce landscape. It manages the needs of both HR/Talent Acquisition and Procurement and provides tools to meet each party’s needs more effectively. TTM provides:

• Faster, greater access to talent
• Amplified cost savings/quality
• Unification of processes and goals
• Consolidation of points of contact
• Increased compliance controls
• Heightened economies of scale

Change is here, and we have a brave new world of talent.  Already, forward-thinking organizations are seeking to purchase not only contract labor through their successful MSPs, but also independent contractors, SOW vendors, and direct employees. They are making choices based not on resource type, but quality and cost. The right partner—who is consultative, strategic and technologically savvy—is critical to driving sustainable results… #functionoverform

The post The Elephant in the Landscape appeared first on Broadleaf Results.

There are numerous shifts necessitating a total talent management strategy. Here are six of the most notable:

1. Overall talent shortage

With limited resources, organizations are discerning—total talent management solutions must prove they are worth the investment. Providers such as Broadleaf need to prepare with research and business cases, so companies invest resources in the most strategic manner.

2. Increases in contingent work

83% of executives report increasing contingent worker populations within their organizations. Due to economic uncertainty and the need to adapt to major market changes, the trend of hiring contingent talent will continue into next year. Freelancers, independent contractors, temporary-to-permanent, and non-permanent workers will be guaranteed a seat at the 2018 table.

3. Complex, niche positions

Finding the right talent for niche roles continues to be a challenge. According to McKinsey & Company, approximately 20 to 23 million workers in advanced economies will lack the skills employers need by the year 2020. Leaders—backed by targeted candidate profiles, referral sources, and market mapping expertise—work to discover the most capable, available talent both quickly and efficiently.

4. Evolving technological landscapes

Advances in technology such as artificial intelligence have led to a decreased demand for transactional roles. On the other hand, these advancements have also created a need for people with the skills necessary to build and support these technologies. At least 30% of typical workforce “duties” could be automated in the near future, according to McKinsey & Company. A huge organizational challenge will be retaining a balance between the human touch and advancing technology.

5. Desire for flexibility

Workers in the “gig economy”—freelancers and professionals who no longer desire the typical 9 to 5 work environment—grew by 28.8% between 2010 and 2014, gaining 2.1 million more jobs over the course of just four years. Predictions indicate that workers making up 50% of the workforce by 2020 will continue to desire flexible and diversified opportunities.

6. Globalization & redefining “work”

The way we view work continues to change due to the increasing number of remote employees and evolving modes of communications and interaction. Companies are globalizing and in need of great talent with multilingual fluency and openness to relocation.

As you prepare your 2018 talent strategy, it’s important to consider your most important resources. At Broadleaf, people stand as our #1 greatest asset and they are the “heart” of our endeavors. Regardless of economic changes, technological advancement, and even the ways in define work, the talent continues to inspire our business decisions.

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So, what exactly is a freelancer? In the 1800s, the term arose to signify a medieval mercenary who would take up arms—or lances—for whichever force best paid him.  The earliest written evidence appears in Sir Walter Scott’s Ivanhoe:

“I offered Richard the service of my Free Lances, and he refused them—I will lead them to Hull, seize on shipping, and embark for Flanders; thanks to the bustling times, a man of action will always find employment.”

Indeed, those were heady times for freelancers!  Today’s workplaces are thankful that modern day freelancers are far more demure, and possess skills that part ways with weaponry.

Freelancers today are an up-and-coming group of professionals that can be engaged in any supplemental, temporary, project- or contract-based work. This trend is also commonly referred to as the “gig economy.” Why gig?—gig here is synonymous with job or assignment.  Freelancers act as their own bosses and control their own destinies, at least to a certain degree.

Just like the Free Lancers of old, twenty-first century freelancers are proactive when it comes to their work and understand the necessity to constantly refresh their skillsets. That said, the freelance economy not only impacts the worker, but also elevates the economy as a whole.

Here are a few things to know about modern-day freelancing based on the “Freelancing in America Study: 2017” by Upwork and the Freelancers Union:

• Just this year, 57.3 million people engaged in freelancing.
• The freelance workforce grew at a rate three times faster than the general U.S. workforce since 2014.
• 49% of full-time freelancers indicated their work has already been affected by AI and robotics, as compared to only 18% full-time non-freelancers.
• 59% of freelancers started freelancing within the last three years.
• Younger freelancers are driving the acceleration in freelancing; the survey found that 47% of those aged 18 to 34 freelanced in this year, as compared to 38% in 2014. The nine-point difference is the highest among all age groups, and the percentage of freelancers fell among those aged 45 and up.
• 69% strongly agreed or somewhat agreed that perceptions of freelancing as a career are becoming more positive in this year’s study, as compared to 63% last year.
• More people are freelancing by choice, with 63% of freelancers doing so by choice in 2017, as compared to 53% in 2014.

We can all agree that freelancing is a (work)force to be reckoned with. But who will impact the freelance economy the most? Millennials! Faith Popcorn, CEO and founder of Faith Popcorn’s BrainReserve, most certainly agrees. The largest cohort in the workforce “inherited a bad economy, have little prospect of home ownership, and come bearing deep college debt,” Popcorn says, so “the idea of one career seems increasingly untenable.” She believes that automation and AI will only accelerate the rise of the freelancer economy. “Ironically, automations like self-driving cars will eliminate some jobs (e.g., driving for Uber), and give way to new forms of freelancing yet undiscovered,” she says.

Jeff Barrett, CEO of Barrett Digital, said it best. “Don’t judge your success on old metrics or look for your next job in old ways.” The world of work is changing around us, and it’s important to evolve along with it.  How else are we to reap the benefits of the seeds sown by Sir Walter Scott’s Free Lancers?

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Sonoco has awarded Broadleaf the 2016 Quality and Innovation Award for their achievements in contingent program labor management.  One of the goals for Broadleaf is to continually manage the compliance/risk reduction and cost savings efforts for Sonoco, while also sustaining valuable relationships with suppliers that provide vital support Sonoco plants.

The Quality and Innovation Award means a great deal to Broadleaf, as it represents their continuous strides in increasing efficiencies through their MSP.  Broadleaf focuses on creating the highest levels of services, from managed service programs to their proprietary VMS (Work Nexus), Broadleaf’s focus is on the needs and objectives and increasing their customers’ bottom line.

Broadleaf formed a partnership with Sonoco in 2008 with an aim to provide a seamless transition from its “first generation” model to an outsourced, streamlined solution that leveraged best practices and provided cost savings. In 2016 over 150 Sonoco plants have deployed the Broadleaf MSP/VMS solution, which continues to drive Sonoco’s goals and business objectives.

“It’s an honor to be recognized by a company such as Sonoco, who is a truly innovative leader in their industry,” said Lynne Marie Finn, President and CEO of Broadleaf Results, Inc. “I’d like to thank Sonoco for this honor, because they are a valued partner, and it is a true reflection of Broadleaf’s dedicated employees, whose commitment to going beyond continues to deliver innovative and agile solutions.

About Broadleaf

Founded in 1965, Broadleaf is a WBENC-certified provider of strategic workforce process solutions. The company’s strategic services enhance productivity through the provision of managed service programs (MSPs), vendor management systems (VMSes), independent contractor compliance programs (ICCPs), and other procurement/supply chain management solutions. Headquartered in Williamsville, NY, Superior maintains offices throughout North America, as well as in South America, Europe, Africa, and Asia.

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In a recent decision by the Court of Appeals in California, the Court concluded that an employer within a supply chain may be liable if they had knowledge of the misclassification of workers, even if they were not the employer who made the determination. This means that if an employer partnered with a supplier who misclassified one of their contingent workers, then the employer is liable for their supplier’s mistake.

These risks and possible pitfalls could be happening to any company that engages suppliers in a business relationship without the proper processes in place.

While there are certainly risks involved in employing independent contractors, successful business operators know that there are solutions to internal problems that expose companies to these risks.
This is why independent contractor compliance programs have been growing rapidly, as companies have found the value in maintaining highly flexible workforces. Creating a program that enables your contingent workforce to run efficiently and seamlessly within existing HR plans not only creates cost savings, but increases efficiency.

What are some of the benefits of independent contractor compliance programs?

Compliance
Whether it’s misclassification, insufficient insurance, or rogue suppliers, staying compliant is critical when facing governmental audits by the IRS. Each year the IRS loses billions in revenue from unpaid taxes as a result of misclassification. In recent years, they have stepped up their efforts to recoup these losses by auditing your business’ books. Through an IC compliance program, the compliance risks and penalties associated with improper classification can be avoided through partnership with a company that specializes in classifying and engaging ICs. Studies have shown that companies who deploy IC programs achieve a 56% higher rate of compliance.

Productivity Management
Eliminating time-consuming processes can significantly boost a company’s productivity and, with an IC program, that is no different.
Through automated technologies used to manage ICs, a lot of the administrative duties that are associated with engaging ICs have been eliminated. Thus, key stakeholders have more time to devote to critical projects and day-to-day duties.

Cost Savings
By eliminating administrative burdens and liabilities, companies experience heightened cost savings—money that they would otherwise have been spent on overhead.

Visibility
Providing the ability to manage rates and analyze IC-related expenditures, an IC program gives its stakeholders visibility into the expenses, profitability and contract length, while also offering an avenue for seamless re-engagement.

Want to learn more about mitigating risk and increasing productivity? Click here for our latest presentation, “Three Best-in-class Workforce Strategies.”

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