The #2 response is: "But all of the companies in my area do it this way..."

Guess what... I tell them the same thing I am telling you. Run your business compliantly from the beginning and you won't need to worry as much about getting blindsided by a disgruntled ex-employee or alphabet soup government agency! 

While this advice applies for pretty much every business scenario, today I want to talk about how your use of subcontractors this might get you into trouble. That's because in early January 2024, the DOL issued their Final Rule for Independent Contractor classification to be effective 3/11/2024, which will change the definition to be more stringent. 

As a general principle, I am not in favor of using subcontractors in the trades except as a legitimate support function that is not required regularly (HVAC subbing for an Electrician from time to time is fine... Subbing for Install work? Not so much). My reason is that a subcontractor by definition cannot represent your BRAND! Why would you trust your customers to someone you have little to no way to hold accountable if things go sideways?  

For those companies that are using subcontractors, here are the new 6 conditions from the DOL that will be reviewed during any sort of lawsuit or investigation.

1. Opportunity for profit or loss depending on managerial skill. If a worker can set or negotiate their pay, accept or decline jobs, choose the time and order to perform jobs, advertise its business, and hire others: the worker is more likely to be an independent contractor. This factor observes that the risk of loss must be based on the worker’s managerial decisions. Thus, workers who incur few to no costs or expenses, provide only their labor, and/or are paid an hourly or flat rate are unlikely to experience loss and thus unlikely to fall under independent contractor status.
2. Investment by the worker and employer. A worker is more likely to be considered an independent contractor if the worker bears investments that increase his/her ability to do more work,  different types of work, reduce costs, or extend market reach. In contrast, costs borne by a worker simply to perform their job (for example, tools and equipment to perform a specific job) are not evidence of capital or entrepreneurial investment. In addition, this factor indicates that the worker’s investments should be evaluated relative to the employer’s investments.
3. Degree of permanence of the work relationship. This factor weighs in favor of a worker being an independent contractor where the work relationship is definite in duration, project-based, nonexclusive, or sporadic. However, a sporadic work relationship due to the temporary or seasonal nature of the job does not indicate independent contractor status. Similarly, if the work is indefinite in duration or continuous, then the worker is likely an employee.
4. Nature and degree of control. This factor focuses on whether the employer retains control over meaningful economic aspects of the work relationship. The Rule not only considers control over scheduling, supervision, price, or ability to work for others, but also considers control that is merely reserved but not exercised as “control.” Additionally, any control exercised to ensure compliance with legal obligations, safety standards, or contractual or customer service standards indicates employee status.
5. Extent to which the work performed is an integral part of the employer’s business. This factor addresses whether the worker’s performance of work is an “integral part” of the employer’s business. If the worker’s performance of work is “critical, necessary, or central to the employer’s principal business” then this factor weighs in favor of employee status, whereas a worker that performs work that is more peripheral to the employer’s business is more likely to be an independent contractor. This goes back to my example of how you might subcontract an HVAC tech to help your Electric company but you can't subcontract an HVAC tech to help your HVAC company. 
6. Skill and initiative. While a worker’s lack of specialized skill to perform the work indicates that the worker is an employee, a worker that is highly skilled in a particular field is not automatically assumed an independent contractor. Rather, the DOL looks to whether the worker’s skills are used in “an independent way” and in connection with “business-like initiative.”

WHY should you worry about this? Because if/when a subcontractor is found to be misclassified, the business owner is immediately liable for unpaid taxes, insurance premiums, fines, fees, interest, OVERTIME, and more... So not worth it in my book. 

Take a look at your business and any subcontractors you may be using to make sure you feel confident given this new Final Rule. Any questions? Reach out to The Big Picture Consulting and we can help!