Things are shaking up in the gig economy. With the New Year comes a few legal updates that could very well affect how your workers’ employment status is defined, how they are paid, and how you calculate your federal withholding taxes. We’ve summed things up for you in a sweet, short article so that you can quickly go back to making the world a better, cooler place.
New Employment Status Standard
First, there’s a new law (H.B. 539) in Tennessee to determine whether workers are employees or independent contractors. You might care to know the distinction between employees and independent contractors because that status affects withholding taxes, workers comp., overtime pay, and other employment and labor laws. And it’s effective January 1, 2020!
The new rule is much more gig employer-friendly. Are you trying to Uberize the real estate, delivery, telehealth, grocery, or even legal industry? If so, this law is for you.
Because of the collaborative nature of relationships in the gig economy, there’s a frequent question as to whether an employer/employee relationship even exists. The fact is, many of these relationships either overlap, are highly collaborative, or involve workers with close and accountable relationships.
With passage of the new law, there’s no longer an employee-status presumption for workers; whether the employer has the right to control a worker is no longer the primary consideration for whether employment taxes and regulations are imposed. Instead, Tennessee now applies a wiggle-friendly 20-factor test, where no single factor is more important than the last. Here’s a summary of those fun factors:
- Who determines when, where and how the worker works?
- Does the worker need in-house training or mandatory meetings that dictates a particular way of working for your business?
- Are the worker’s services integrated into your business operations?
- Are the methods used or is the person providing services similarly as important as the results?
- Are the worker’s assistants hired, supervised, or paid by your business?
- Is there a continuing, albeit irregular, working relationship?
- Are there set working hours?
- Must the worker devote substantially full time to your business, or is the worker free to work when and for whom the worker chooses?
- Must the work occur on your premises, even if it could be done elsewhere?
- Can the worker follow a personalized pattern of work, or must the worker follow the established routines and schedules of your business?
- Must the worker submit regular or written reports?
- Is the worker paid by the job or by the hour?
- Do you pay the worker’s business or traveling expenses?
- Do you furnish significant tools, materials and other equipment to the worker?
- Does the worker invest in the facilities used to perform the work?
- Can the worker realize a profit or suffer a loss as a result of the worker’s services, in addition to the profit or loss ordinarily realized by employees?
- Does the worker perform more than de minimis services for multiple, unrelated businesses at the same time?
- Does the worker make the worker’s services available to the general public on a regular and consistent basis?
- Can the worker be dismissed for reasons other than failing to meet the contract specifications?
- Does the worker have the right to end the working relationship at any time the worker wishes without incurring liability?
New Benefits Rate
There’s definitely a new standard in town. The Fair Labor Standards Act is redefining regular rates. “Regular rate” of pay is used to calculate overtime premiums, and includes things such as hourly wages, health insurance, paid leave, and most bonuses.
In the gig economy, employers are incredibly innovative when it comes to making their employees’ lives better. Some of the best ideas for benefits failed to fit in the pre-defined boxes of regular rates because they were radically different from what businesses had been doing for the past century.
With the old “regular rate” definition being as it was, many gig employers were left feeling confused as to whether certain benefits had to be included in overtime calculations—instead of risking legal liability, some would simply forgo offering employees modern, competitive benefits. The U.S Department of Labor stepped in to clarify all that’s included in the “regular rate”, defining it as NOT being . . .
- All that unused paid leave, whether sick leave or paid time off;
- Health and wellness programs, like onsite specialist treatments and gym access;
- Coveted, discounted, or paid parking spots;
- Employee discounts on retail items;
- Certain penalties employers must pay under state and local scheduling laws;
- Reimbursement for business expenses like phone plans, membership dues, travel expenses (to a certain amount), and credentialing exam fees;
- Bonuses for signing on, staying on, and just because (discretional);
- Help with tuition and adoption;
- Contributions to benefit plans for accidents, unemployment, legal services and other things that could cause financial hardship;
- And most importantly, office snacks!
Feel better about your legal obligations when doling out those benefits! This new regular rate definition goes into effect on January 15, 2020.
New W-4 Form
What else is new? Your employee’s W-4 form! The new form is meant to make it easier for employees to accurately withhold income taxes. As an employer, you should know a few things:
- If your employee was hired on or after January 1, 2020, that worker needs to complete the new W-4—so go ahead and recycle all the old blank ones you have laying around;
- Employees that were hired before the start of 2020 don’t have to fill out the form, but they can adjust their withholding based on the new W-4;
- If any adjustments are made after January 1, they need to be made with the new form;
- You can use the old W-4s your employees submitted for computing withholding if no one has adjusted their withholding using the new form; and
- With the new W-4, you get a new Publication 15-T, which serves as a guide to determine federal withholding.
New Overtime Eligibility
Wrapping things up like 2019, the U.S. Department of Labor also has a new take on overtime eligibility that will go into effect on January 1, 2020. Here’s the breakdown:
- If your white-collar exempt employee earns less than $35,568 per year (the “standard salary level”), they are entitled to overtime pay;
- Non-discretionary bonuses, incentives, and commissions (that are paid annually) can meet up to 10% of the standard salary level;
- If your highly compensated employee earns less than $107,432 per year, they are entitled to overtime pay; and
- Same as the old rule, highly compensated employees are those that are non-executive, administrative, or professional employees who earn at least the $684 per week threshold and whose primary duties involve performing office or non-manual work and include duties such as directing the work of two or more employees.
Like always, the team at Rockridge Venture Law is eager to help change-makers make change. Get in touch with us if you need some assistance implementing all these new legal confoundments. This article is not legal advice. If you would like legal advice, you must reach out personally and request it. Happy 2020, everyone!
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