As a respected professional in the world of human resources, I am often hired to provide content for various media outlets around the Country. One of the media outlets that I provide content for is FocusDetroit.Net. In August 2012, I wrote an article about the differences between employees and independent contractors. Someone commented on the article who disagreed with my article stating pretty much the only difference between an employe and independent contractor is if you give them “1099 status” via a contract, that makes them a contractor (paraphrased).
While I’m very clear on differences (been doing this over 20 years and one of my certifications is CCP which is a Certified Compensation Professional, so I better know the difference between an employee and a contractor, right!?), an article surfaced in ABC News today stating that Exotic Dancers are employees and they ARE NOT Independent Contractors. Which means, Yes, they can get unemployment! The club owner in the story stated the dancers are paid “tips” and they only provide a “rental space” for them to do their work. In this case, the Department of Labor argued, “the minimum rates for particular dances and rules binding interactions with customers could be interpreted as rules for employees”. Well, the ruling today – which was decided at the Supreme Court level, not only proves that I know what I’m talking about (spikes the ball and does a dance in the end-zone), but this also sets a new precedence for strip clubs (and the entertainment industry as a whole) around the Country.
Anyone who knows me, knows that my victory dance in the above paragraph is all in fun, but this is why I always advise small business owners who do not have a formal HR Department, to keep an HR Professional on retainer (yes, I’m available), or have an Employment Lawyer in your circle. Companies are fined routinely for misclassifying their employees.
It’s not news that many Small Businesses take the “1099 Independent Contractor” route to avoid paying payroll taxes and contributing to unemployment- insurance. However, it’s important to note, “What you don’t know will cost you!” Fines for misclassification can greatly impact the bottomline of any small business owner. I guess is now is a good time to say, “ignorance of the law is no exception.” Misclassification also has an effect on the economy as a whole. According to Attorney General, Richard Cordray. “Misclassification is bad for business, government and labor. Law-abiding businesses are in many ways the biggest fans of increased enforcement. Misclassifying can mean a 20 or 30 percent cost difference per worker.”
So as you can see, it takes more that the “details of the contract” to determine employee vs. contractor status. Under the law, a “dancer” is just like a waitress…i.e. AN EMPLOYEE. Yes, this is a new a ruling but it goes to show how often (and how easily) employees are misclassified because people fail to understand employment law (which is why HR is a specialized industry). Many think because they hire/fire they understand the law, but it is not as simple as “the details of the contract”.
This case was taken all the way to the Supreme Court. I’m sure the club owner and the dancer had a “contact”, but at the end of the day, it is the “function of the job and the mandate to follow house rules” that determined dancers are NOT independent contractors, but employees. This story is a perfect example of an employee being misclassified as a 1099 Independent Contractor.
Remember, The IRS (not the contract), determines whether an individual is an employee or independent contractor and considers 3 categories of control: behavioral, financial, and type of relationship. If you still think “it’s not that big of a deal”, the IRS now has a Voluntary Classification Settlement Program for taxpayers who have erroneously classified employees as independent contractors.
Here’s a quick read on the difference between Employees and Independent Contractors.
You can view the original article on FocusDetroit.net, here ENTREPRENEUR TIPS: Hiring Independent Contractors, Are you sure that’s not an employee?
On rotation, one workshop, I conduct for a the Chamber of Commerces called, “HUMAN RESOURCES: What You Don’t Know Will Cost You!” If you are a small business owner and would be interested in going through this course feel free to send me a line, via the contact form at the bottom of this blog. If 10 or more people respond, I will set up a 1 hour overview workshop to go over areas that may be “fine city” in your organization!
Call me before you classify!