DOL Focusing on Misclassified Employees: What About Employee Benefits and the ACA?
On Wednesday, the DOL’s Wage and Hour Division issued an Administrator’s Interpretation that has made some noise in the employment law community. The DOL has long taken issue with the misclassification of employees as independent contractors under the Fair Labor Standards Act (“FLSA”), and in this Interpretation, endorses a broad view of the FLSA definition of an employee that will result in most workers being considered employees. On the heels of the DOL’s proposed regulations tightening up the salary limit for FLSA exempt employees, and in light of an uptick of misclassification enforcement agreements with state labor agencies in 2015 (my home state caved the same day the Interpretation was issued), it appears the DOL is gearing up for an enforcement push.
The Interpretation provides an extensive list of areas where misclassified employees receive the short end of the stick (minimum wage, overtime, workers’ compensation, unemployment, etc.), but I couldn’t help but feel a little offended that it failed to mention employee benefits. If the DOL begins (more) seriously enforcing employee misclassifications with a stricter interpretation of the FLSA in hand, then many employers using independent contractors may unwittingly find themselves subject to ACA pay or play penalties if the “independent contractor” worked full-time hours, was not offered coverage under a group health plan, and received a subsidy on the exchanges. Even worse, an employer that may have believed it was a small employer might suddenly discover that, thanks to its “independent contractors,” it is actually a large employer subject to both the pay or play penalties and the ACA reporting requirements. And how many employers out there have been fastidiously tracking their independent contractors’ hours to report on the Forms 1095? Maybe some that pay hourly rates, but others may not be so lucky.
In addition to the potential ACA implications, there have always been risks in classifying individuals as independent contractors as it relates to benefits (e.g. improper exclusion from a retirement plan). But with the ACA penalties now in play, and with the DOL’s renewed vigor and updated guidance on the matter, it is worth a second look to make sure you are confident that your independent contractors are not actually employees.