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By: Paul H. Derrick
North Carolina’s new Employee Fair Classification Law creates a division within the state’s Industrial Commission to investigate and prosecute worker misclassification complaints. The law came about after a series of newspaper reports detailing the widespread practice of employers classifying a large portion of their workers as independent contractors instead of employees in order to avoid unemployment taxes and payments, workers’ compensation, payroll taxes, and other wage costs.
The newly-created division will report complaints to various state agencies involved with misclassifications, including Department of Revenue, Department of Labor, Division of Unemployment, and others. That means a single worker complaint could trigger a far-reaching investigation of an employer’s labor practices by a number of administrative authorities.
Many businesses believe that simply labeling a worker as a “contractor” is enough to take them outside the coverage of state and federal employment laws. That is simply wrong. Workers are legally presumed to be employees unless their work arrangements meet several rigorous criteria. The standard for determining employee or independent contractor status is based on the common law “right of control test,” which considers such things as whether the worker: is engaged in an independent business; has independent use of his special skills, knowledge, or training; was hired only to do a specified piece of work; is not subject to being discharged for his method of work; and is free to hire assistants and fully control their work.
North Carolina companies that use contract labor should take the time to carefully review the basis for their classifications and ensure that anyone classified as a contractor truly meets the applicable criteria. Those that fail to ensure compliance can expect significant investigative costs, legal expenses, and general disruption that often accompanies misclassification claims.
If you have any questions or would like more information, please contact Paul Derrick at [email protected].