Does Santa Pay his Elves the Right Way??
As the holidays draw near this year, Kris Kringle aka Santa Claus may need to reconsider whether he has properly classified his elves as employees or contractors to avoid any wage and hour pitfalls. The question of whether a worker is an employee or a contractor under the Fair Labor Standards Act has seen some changes this year. The U.S. Department of Labor had previously published a Rule for determining Independent Contractor Status under the Fair Labor Standards Act that weighed certain factors over others; however, this was vacated by a Federal Court in Texas earlier this year.
In October 2022, the U.S. Department of Labor proposed to revise its guidance, rescinded the prior proposed rule and proposed a new rule that it sees as more in line with the Department’s prior guidance and case law. The new rule proposes to return to a “totality-of-the-circumstances” analysis rather than weighing one particular factor over another. The new rule also returns the analysis to a consideration of investment by the contractor as a stand-alone factor, additional analysis of the control factor (including details on how scheduling, job duties, work space, supervision, price-setting, and the ability to work for others should be considered), and returns to whether the work done is integral to the employer’s business. The proposed rule is still in the comment phase, so it is not final.
If this new rule passes comment and becomes final, what does that look like for Santa’s North Pole operations if his elves are classified as independent contractors?
The actual North Pole work shop operations are kept under tight wraps, so no one really knows what happens in Santa’s workshop. Do the elves work all year long or do they work for a few months a year? No one can say for sure what type of schedules the elves keep, who is supervising the elves’ work, what the workshop conditions may be or if there is any other employer in the North Pole they could offer their services. It is obvious Santa runs a tight ship since he has so many wishes to fulfill and needs his elves to produce the toys to do so. The elves are undoubtedly integral to Santa’s business. Santa could not possibly deliver all the toys to all the children around the world without his elves.
However, based on the 1964 animated movie Rudolph the Red-Nosed Reindeer, some of those elves (Hermey, to be specific) take off in the middle of a shift because they don’t want to make toys then cruise around the North Pole to pursue dreams of being dentists. This autonomy of choosing when to work, and alternative job opportunities, may give some basis for Santa classifying his elves as contractors. While one misfit elf may not be the benchmark, it leaves the question a bit open-ended. Rest assured, Santa Claus would make sure he has properly classified his elves by making a list of relevant factors and checking it twice.
In the end, the lesson to stay off the naughty list is to know what factors to consider when determining employee versus contractor status under the Fair Labor Standards Act. Graydon’s Labor & Employment Group are available to fulfill any holiday wishes to evaluate this or any other employment-related topic.