The Department of Labor recently released its final rule on worker classification (Independent Contractor vs. W2 employee). The rule returns to a six-factor test, which focuses on the totality of circumstances of the relationship between the worker and the employer. This is quite different from what had been in place in the last couple of years, which was a more employer friendly rule, with two core factors to consider, not six.
In addition to the federal guidelines, Nevada has its own tests for determining who is an employee or an independent contractor. Additionally, Nevada recently passed Senate Bill 293 (SB293), which, among other things, requires solar companies to classify their sales teams as employees.
While employee misclassification is not a new issue, the more recent focus on defining what it means to be an independent contractor versus an employee means now is a good time to conduct an audit to ensure that everyone is correctly classified. A thorough audit, in line with the Fair Labor Standards Act (FLSA) and Nevada law, should not only scrutinize the independent contractor versus employee classification but also delve into the exempt/non-exempt designations.
Commencing your review with job descriptions, including wage ranges, serves as an effective starting point. This approach allows you to assess the scope of duties for the exempt/non-exempt duties test and easily discern factors indicative of an employer/employee relationship. That said, if you have job descriptions for your independent contractors, or if you are calling them “1099 employees,” they more than likely need to be classified as W2 employees.
Penalties for misclassification can be significant. Minimum wage and overtime violations, which can occur when an employee is classified as exempt/salary when they should be non-exempt hourly, are costly. The Department of Labor generally looks back for two years when assessing violations and can go back three years if they determine the violation is willful. Back pay can be required for all affected employees, in addition to fines and penalties. Willfully misclassifying a worker as an independent contractor when they should have been classified as an employee can result in a penalty of $5,000 per misclassified employee under Nevada law.
Conducting a proactive audit not only mitigates the risk of back pay and penalties but also ensures regulatory compliance. If an audit seems like a daunting task, consider enlisting the expertise of our team of HR professionals. Our team can facilitate a thorough audit tailored to your organizational needs.
Don’t leave compliance to chance – reach out to NAE today to schedule your audit and proactively address any classification uncertainties. Let us help you protect your business from potential liabilities.
