Good business practices

The Department of Labor (DOL) has been very aggressive in auditing employers over the misclassification of workers as independent contractors, instead of employees.  Properly classifying workers is important for employers to avoid hefty fines, additional taxes, interest, and additional wage and overtime obligations.

The old test focused on the employer’s control over the worker.  Since 2015, the DOL has applied an “economic realities test,” to determine whether the worker is economically dependent on the employer.  The test asks six questions to determine a worker’s proper employment status.  They are:

  1. Is the work to be performed integral to the operation of the business? If the work is integral to the business of the employer, the worker is economically dependent on the employer and therefore considered an employee.
  2. Does the worker’s managerial skills affect their opportunity for profit and loss? This is generally determined by whether or not the worker has the ability to make decisions and use their managerial skill and initiative to impact their profit and loss.
  3. How does the worker’s relative investments in facilities and equipment compare to the employer? Under this test the worker must make an investment and bear some risk of loss in order to be an independent contractor in business for themselves. Examples of investments might include the purchase of a specialized business vehicle, advertising for the business, rented office space for the business, etc.  The investment can’t be minor and needs to be compared to the employer’s investment.
  4. Does the work require special skills and initiative? To qualify as an independent contractor, the worker would need to exhibit independent business judgment. Business judgment must be used in some independent manner which demonstrates initiative.  These may include marketing the business, ordering supplies and equipment for the business etc.
  5. Is the work relationship indefinite? Indefiniteness in the working relationship makes it appear more likely the worker is an employee. Generally, an independent contractor relationship is evidenced by a contract for a limited period of time or a special project.
  6. What is the nature and degree of the employer’s control? Analysis of this factor takes into consideration who sets the amount of and hours of work, who determines how the work is performed, as well as whether the worker is free to work for others and/or hire helpers.

The DOL has specifically stated however, that the fact a worker has incorporated a business and/or is licensed by a state or local government has little bearing on determining the nature of the employment relationship.  Similarly, the mode or time of the payment to the worker is not determinative.

Since the DOL has declared most workers are employees under their broad definition, it is a good time for employers to review their independent contractors, to determine if they in fact are misclassified.  Getting it right will save a lot of time, effort, and money.

I had a call from a client last week asking about whether there was a good format to use for drafting a disciplinary letter to give to an employee.  I advised her there was and suggested the following format:

  • Start with an accurate statement of the facts including: what happened, when it happened, etc… Make sure it is factually based and does not include opinion or judgment.  If a workplace policy or safety violation occurred, it should be referenced.
  • Describe any previous problems or issues, and what happened as a result (if anything). Be specific about dates and consequences such as you were counseled about …, or you were reprimanded, or you were retrained on this same problem etc…
  • Describe the impact the misconduct or performance problems have on the workplace.  The impact could be financial, related to staffing, safety, disruption of work production etc…  An example would be; “As a result of you being late to work, other employees needed to fill in for you until you arrived.  This meant they were not able to complete their own work.”
  • Clearly explain the expected behavior or performance that must be achieved to be successful.
  • Finally, the conclusion should state what will happen if the employee does not improve or change their conduct.  For example: “Future misconduct may result in further discipline, including termination from employment.”

A clearly drafted disciplinary letter helps to document an employee’s misconduct or performance deficiency and can help avoid future litigation claims.  It also gives clear direction to the employee about what is expected in the future and the potential consequences for failing to make the identified changes. 

Photo by: MCruz

Paperback-stack2016 is here, and so is the opportunity to gain new perspectives and tools to help transform workplaces, increase productivity, and better manage employees.  My current favorite read on this topic is Shawn Achor’s book, “The Happiness Advantage: The Seven Principles of Positive Psychology that Fuel Success and Performance at Work.” 

Achor’s book turns some old ideas upside down.  He suggests our culture falsely believes, “If you work hard, you will be successful, and once you are successful, then you’ll be happy.”  Achor proposes this is backwards thinking and broken.  Instead based on positive psychology, happiness is actually the precursor to success.   His book outlines seven principles he identifies including:

  1. the happiness advantage,
  2. the fulcrum and the lever,
  3. the tetris effect,
  4. falling up,
  5. the Zorro circle,
  6. the 20 second rule and
  7. social investment”    

I admit, I am only as far as the fifth principle – the Zorro circle.  This principle suggests how limiting your focus to small manageable goals can actually expand your sphere of power.  It is a very fast read, packed with research to support his principles, and I plan on implementing some of them in 2016.

For a quick recap from author and researcher Shawn Achor watch his TED talk.  He is engaging, funny, and outlines the premise of his book.  New ideas help fuel successful workplaces.  I advise clients to keep fresh ideas flowing, and I think Shawn Achor has some very good insight on human potential that can translate well into a transformed workplace.