The "Gig" is Up: Implementing the DOL's Independent Contractor Rule with Krystal Yates

In episode 148, Coffey talks with Krystal Yates about the US Department of Labor's revised rules for classifying independent contractors.

They discuss the difference between an employee and an independent contractor; “1099 employees”; the reasons employers might misclassify employees as independent contractors; “gig” workers; the changes brought about by the final rule; employer considerations when determining if a worker is an employee or an independent contractor; the economic reality test factors that serve as a guide to determine if an employment relationship exists under the FLSA; and common mistakes made by employers when hiring and managing contractors.

Good Morning, HR is brought to you by Imperative—Bulletproof Background Checks. For more information about our commitment to quality and excellent customer service, visit us at https://imperativeinfo.com.

If you are an HRCI or SHRM-certified professional, this episode of Good Morning, HR has been pre-approved for half a recertification credit. To obtain the recertification information for this episode, visit https://goodmorninghr.com.

About our Guest:

Krystal Yates is a certified HR expert with SHRM-SCP and SPHR certifications. She is the President and Founder of EBR HR Experts and Integrity People Group, overseeing HR strategy for several small and medium businesses in DFW.

Prior to starting her own firm, Krystal worked for several small businesses in DFW, overseeing HR and Operations.

Krystal is a member of the Forbes Coaches Council. She serves on the Feral Friends Community Cat Alliance board, is a Trustee for The Longhorn Group of Charities Unit Accounting Trust, and volunteers with DallasHR and the Lewisville Area Chamber of Commerce.

Krystal Yates can be reached at:

www.IntegrityPeopleGroup.com 

https://www.linkedin.com/in/krystalyates

About Mike Coffey:

Mike Coffey is an entrepreneur, human resources professional, licensed private investigator, and HR consultant.

In 1999, he founded Imperative, a background investigations firm helping risk-averse companies make well-informed decisions about the people they involve in their business.

Today, Imperative serves hundreds of businesses across the US and, through its PFC Caregiver & Household Screening brand, many more private estates, family offices, and personal service agencies.

Mike has been recognized as an Entrepreneur of Excellence and has twice been named HR Professional of the Year.

Additionally, Imperative has been named the Texas Association of Business’ small business of the year and is accredited by the Professional Background Screening Association.

Mike is a member of the Fort Worth chapter of the Entrepreneurs’ Organization and volunteers with the SHRM Texas State Council.

Mike maintains his certification as a Senior Professional in Human Resources (SPHR) through the HR Certification Institute. He is also a SHRM Senior Certified Professional (SHRM-SCP).

Mike lives in Fort Worth with his very patient wife. He practices yoga and maintains a keto diet, about both of which he will gladly tell you way more than you want to know.

Learning Objectives:

1. Understand the difference between employees and independent contractors.

2. Utilize the classification factors outlined in the Department of Labor’s final rule. 

3. Avoid common mistakes employers make in hiring and managing independent contractors.

What is Good Morning, HR?

HR entrepreneur Mike Coffey, SPHR, SHRM-SCP engages business thought leaders about the strategic, psychological, legal, and practical implications of bringing people together to create value for shareholders, customers, and the community. As an HR consultant, mentor to first-stage businesses through EO’s Accelerator program, and owner of Imperative—Bulletproof Background Screening, Mike is passionate about helping other professionals improve how they recruit, select, and manage their people. Most thirty-minute episodes of Good Morning, HR will be eligible for half a recertification credit for both HRCI and SHRM-certified professionals. Mike is a member of Entrepreneurs Organization (EO) Fort Worth and active with the Texas Association of Business, the Fort Worth Chamber, and Texas SHRM.

Krystal Yates: 00:00

If you're hiring a 1099 worker, I would encourage you to find out what else they're doing because this is where the real issue comes in. Right? If they're working for you 40 hours a week over a long period of time, they're probably an employee no matter how you classify them.

Mike Coffey: 00:24

Good morning, HR. I'm Mike Coffey, president of Imperative, bulletproof background checks with fast and friendly service. And this is the podcast where I talk to business leaders about bringing people together to create value for shareholders, customers, and the community. Please follow, rate, and review Good Morning HR wherever you get your podcasts. You can also find us on Facebook, Instagram, YouTube, or at good morning hr.com.

Mike Coffey: 00:53

On March 11th, the US Department of Labor's revised rules for classifying independent contractors went into effect. And 5 months after the DOL published the revised rule, many employers are still uncertain about whether some of the people who perform services for or on behalf of their company can still be considered independent contractors. Joining me today to bring some clarity to the situation is Crystal Yates. Crystal is the president and founder of EBR HR Experts and Integrity People Group, which assists small and medium businesses in North Texas with their people management practices. With over 25 years of HR experience, Crystal is a certified HR expert with both the SHRM SCP and SPHR designations.

Mike Coffey: 01:42

Crystal is a member of the Forbes coaches council and is a volunteer with Dallas HR. Welcome to Good Morning HR, Crystal.

Krystal Yates: 01:51

Thanks, Mike. Good to have good to be here.

Mike Coffey: 01:54

So the Fair Labor Standards Act covers a bunch of different employee employment related issues. And anytime there's discussion around classification, people quickly begin to blur the lines between independent contractor status versus exempt or nonexempt status or even things that have nothing to do with the FLSA, like right to work states. So let's start out by being really clear about what kind of employee assessment the latest DOL rule affects.

Krystal Yates: 02:24

And the real thing that this triggers here is, is this person an employee or a contractor? And let me be real clear. I have this conversation a lot. There is no such thing as a 1099 employee. They are either a contractor or they are an employee.

Mike Coffey: 02:44

And that's we hear that all the time. Yeah. This is a contract employee. Well, they're an employee or they're not an employee, right? And they're either a business you're buying services from or they're an actual employee.

Mike Coffey: 02:57

Right? I mean, those are your 2 choices to first setting them up. That is exactly right. Yes. So let's just put you know, so everybody stop saying contract employees, stop saying 10.99 employee.

Mike Coffey: 03:09

There's no such thing. So we got that put to bed. And that's what the renew rule really affects. Right? That status, whether this person's gonna get a w two at the end of the year, or we're gonna send them a 10.99.

Mike Coffey: 03:22

But, I mean, that's really what it boils down to. And my experience over the last 30 years has been that whenever an employer comes to me with concerns about, you know, if I'm misclassifying, almost in any case where they're talking about misclassifying somebody, they already know they're doing it wrong. And, and and they're looking for the justification, you know, or that loophole to squeeze them into this other category. And I think that goes the same whether it's exempt, nonexempt, or a, contract or independent contractor or a regular employee. And, you know, people really want, for some reason, you know, to pigeonhole somebody in a different one.

Mike Coffey: 04:02

And there's probably reasons for doing that they want to do that, but it's really expensive if you do it wrong and get caught.

Krystal Yates: 04:10

And I always like to remind employers, the burden of proof is on you. It doesn't matter if the worker came to you and said I want to be a 1099. If they're not supposed to be and you get audited, the burden of proof and the burden of payment in the form of back taxes and penalties is also on you. So this is not a mistake you wanna make.

Mike Coffey: 04:36

Right. And it's more work to have a an employee on the books than just have a con independent contractor that you use for, you know, a specific thing. But you bring a new employee on, you've gotta treat them like a new employee. And so we've got payroll withholding and the employer contributions, which is the real thing. I think it bothers a lot of employers.

Mike Coffey: 04:57

But you also have to do a form I nine. You if you have to look at your health insurance plan, does this person qualify now for health insurance? And you've got to apply comply with the state's payroll laws. So you don't have you're not gonna wait on an invoice from this person. You've got to Texas Payday Act or whatever the law is in your state and deal with unemployment, all that stuff.

Krystal Yates: 05:16

The fear I usually hear from people is the fear of how do I make payroll work. And let me tell you, when I started working in HR, payroll was a big deal. It was difficult. It couldn't be easier today. Software exists that makes it easy.

Krystal Yates: 05:33

Software providers, payroll providers exist that will help you navigate everything you need to know. They'll set you up, and off you go. So that shouldn't be a fear.

Mike Coffey: 05:45

So the final rule was published in January, took effect in March. In your review of it, what's really changed? We did have Patrick Richter on at the end of January reviewing the final rule in our HR news episode then. But as you look at it, is this a nothing burger, or is there are there are the are the rules different or the clarifications useful?

Krystal Yates: 06:14

There aren't any major changes. What we've done is gone back to 2021 where we looked at all six factors instead of 2 high level factors. The laws itself have not changed, but what we're saying now with this new ruling is it's going to be a lot more difficult to prove that this worker is a contractor than it was before.

Mike Coffey: 06:39

And the government's main reason for this is tax collection. Right? Because a lot of 10.99 employees just don't file their taxes right. And Right. And if they don't get a 10.99, they assume the government doesn't know about the income and and that happens a lot too.

Mike Coffey: 06:53

So so this is a a revenue thing for the government, but it's also, in a lot of circumstances, just a fairness situation.

Krystal Yates: 07:03

It it is, and I have a lot of people at this point argue with me. Well, we we live in a gig economy. I have all these workers who don't wanna be employees, and the only thing I can tell you is no. The laws have not caught up to the current economy, to the current work environment, and then repeat what I said before, and that is the burden of proof is on you. And it's not your decision.

Krystal Yates: 07:28

It's the government's decision how you're going to classify these people. So

Mike Coffey: 07:33

And you always have the option of hiring someone through a a gig platform. Right? I mean or, you know, not hiring them, engaging them. I shouldn't even say the word hired but, you know, through those gig platforms. But those folks are paying those employees like w two employees a lot of the time.

Mike Coffey: 07:52

And, so that's just the reality. They're still gonna get paid. But then that's one way to do, you know, to have this additional labor. Maybe it's just for a specific project or whatever, but where they may otherwise qualify as a regular employee if you were to pay them directly.

Krystal Yates: 08:12

And I've actually I've created a list of questions or you can Google these. I've I've really compiled. I haven't created a list of questions. So if you're not sure, ask yourself. You just touched on, I think, one of the most important.

Krystal Yates: 08:25

And is this for a project, or is this somebody I'm gonna keep on for the next 6, 9, 12 months?

Mike Coffey: 08:32

So, yeah, let's just go through the big picture. What okay. There's 6 factors, and I can I think What I drew out of the, the DOL stuff is just really just look at the economic reality of it? Alright, let's just you know And so I'll let you jump into that. But, how would you know, where's what's your first evaluation when you start looking into this for employers?

Krystal Yates: 08:54

Well and there's there's no one factor that weighs heavier than the rest. From a practical standpoint, when I'm working with people, I find the biggest challenge is who's providing the tools and who's making the day to day decisions. If you look at that, that's going to answer the question 9 out of 10 times. It, again, it doesn't mean that this factor weighs any heavier than the rest, but did you provide and by the way, tools include software email addresses. It's not just the hand tools to go do do a physical job.

Krystal Yates: 09:27

Are you telling them what to do and how to do it, or are you telling them what the outcome is? Because that's the difference between hiring an employee and hiring an organization to do a job that you don't want to do. Right? I always pick on bookkeepers. Right?

Krystal Yates: 09:46

It's one of the first things small businesses tend to outsource. So is a bookkeeper an employee? Well, if you're bringing them in the office and you're handing them your software and saying, here's what I want you to do. Here's when I want you to be here. Here's how I want you to do it.

Krystal Yates: 10:03

They're an employee. If you're engaging in organization and saying, here's my stuff. Take care of it. I don't know what needs to happen, but you do. Oh, but I expect to have my reports by the 7th of every month.

Krystal Yates: 10:18

Oh, I just gave them a deadline. That's okay. That's part of the engagement in the agreement, but I'm not telling them how to do the job. I'm not telling them what tools to use. And I'm not telling them

Mike Coffey: 10:30

where to the product.

Krystal Yates: 10:32

That's correct. My interpretation of this new ruling, one of the biggest changes though is what they are calling the integral piece to the business. So the extent to which the work performed is an integral part of the potential employer's business. And that's the one that tends to have the most debate. Mike, I don't know what you've heard around this, but I'm I can argue that my bookkeeping is pretty integral to getting my business done.

Krystal Yates: 11:05

But I believe that the intent behind that is the actual work itself. So a bookkeeper is not integral to getting the work that we do here done. As a as a consultant as an HR consultant, if I hire another HR consultant to go work with my client, that's integral. I hire a bookkeeper to manage my books while this other consultant and I are out working with customers, that's not. So I believe that's what the intent of that is, but we're dealing with the government.

Mike Coffey: 11:42

And, again, it's a revenue thing, and the government's looking for revenue here. And and I've heard both things. I've heard, okay. Well, you're a marketing firm, so people that are directly involved in the marketing stuff are integral to the business. But then I've also heard the other side is, well, you're you know, this is one of the pillars of your business, finance.

Mike Coffey: 12:02

And this person's providing finance support on an ongoing basis, meets all the other tests. This isn't just a short project. This is, you know, they're on an ongoing basis. They're coming into your office. All those other things also affect the determination, but you can't do business for very long without finance.

Mike Coffey: 12:22

And that's integral to and so I would tell a client on the side of caution here because the, the expense of a d o DOL action even if you win it is not worth the cost. And the cost of actually doing it and making this person an employee It's not that significant compared to the risk and and the time and it's you know, it's one of those things where the employ the the individual is usually fine with it being 10.99 until they're not, you know, you know, suddenly I I this person's, you know, no longer I mean, no longer using their services. Maybe I was their only customer and now they're they have no income, so they go file unemployment. And that's, I think, where a lot of employers first find out that maybe we misclassified somebody is because now I've got an unemployment claim that I'm why are they filing unemployment? They were a contractor or they were a contract employee.

Mike Coffey: 13:21

And so

Krystal Yates: 13:22

That's the number one way businesses get caught is through unemployment claims. So you have to be very careful about if you're hiring a 10 99 worker, I would encourage you to find out what else they're doing because this is where the real issue comes in. Right? If they're working for you 40 hours a week over a long period of time, they're probably an employee no matter how you classify them.

Mike Coffey: 13:57

Right.

Krystal Yates: 13:57

And, Mike, you say they're not it's not more expensive. It shouldn't be more expensive at all if you're paying them correctly as a contractor because you're paying contractors enough to cover taxes and downtime, etcetera. That's why contractors are more expensive than internal employees

Mike Coffey: 14:17

Right.

Krystal Yates: 14:18

In theory.

Mike Coffey: 14:19

So we talked about the nature of or how integral the work is to the business. What are the what are the other six factors that really jump out to you?

Krystal Yates: 14:27

And I'm gonna look at my cheat sheet here so I don't get it wrong. So opportunity for profit or loss.

Mike Coffey: 14:34

So that's like running a real business too. Right? Okay. So That's right. You know?

Mike Coffey: 14:38

Who's making set up?

Krystal Yates: 14:40

Who's making the decisions on the cost? Right? Who I tell my clients how much I cost. As an employee, I'm gonna go in and they're gonna tell me how much they're willing to pay me. Right?

Krystal Yates: 14:53

And and then there's the cost of the the services as well. Right? Who's setting those? The investment. Who's making the investment?

Krystal Yates: 15:01

Is it the employer or is it the worker?

Mike Coffey: 15:04

So is employer buying the equipment, the computers, all of that, or is it the individual doing it?

Krystal Yates: 15:10

Exactly. The degree of permanence. Am I hiring you for 1 3 month contract, 1 3 month project, or are you gonna work for me over the next 24 months? The latter would insinuate that you might be an employee.

Mike Coffey: 15:27

Well and that's and what happens there a lot of times is that the we start with this, oh, we're gonna do this one project. And, 20 hours a week for 6 weeks till we finish the project. That's great. Oh, but there's more work to do and we keep going and and you look up and this person's worked for you for an ongoing basis for a longer period of time. And when you look at the rest of the the six factors, this was temporary, but was it really temporary and temporary is just one of the factors so it doesn't eliminate all the others so you hear a lot from you know, you know, I'm a, you know, oh, she's a stay at home mom.

Mike Coffey: 16:08

She only works 20 hours a week for me. And it's just it's temporary. You know, we're just, you know, while during our busy season, I'd argue that's she's not set up as a business. She's not taking any risk here. Right?

Mike Coffey: 16:22

So just because it's short term, I don't even think necessarily eliminates them from, especially if it's something core to your business, like you're a marketing company and you're bringing in a graphic artist to really isn't out there marketing themselves as a graphic artist for for hire. Suddenly, you're in a business.

Krystal Yates: 16:40

I get a lot of people who think part time means contract. It doesn't. You can hire, and I think that that that designer is a perfect example. I only hire you when I have projects, but you're still my employee if you meet all those other factors.

Mike Coffey: 16:59

Right.

Krystal Yates: 17:00

The nature and degree of control. Who's setting the schedule? Who's deciding where you work? Right? I I want you in my office at 9 o'clock on Monday morning.

Krystal Yates: 17:10

You're probably an employee.

Mike Coffey: 17:13

And I think there are a lot of employers could say well, employers may say, well, you know, you just work when you wanna work. But then the first Monday, that person's not there at 9 AM, and I have a question for them. I'm getting annoyed. Okay. I need you here at 9 o'clock so you can do.

Mike Coffey: 17:28

And suddenly, well, that's now you're treating them really like an employee.

Krystal Yates: 17:31

And you've gotta be very careful. You can lay it all out. Like like I said, I get a lot of I have a lot of conversations trying to justify why an organization is doing it a certain way. And you may lay it out exactly right. You may read all the things, lay it out all correctly, but then we slip into employee based behavior over time.

Mike Coffey: 17:55

Well, and that goes back to the time issue too. I mean, we're gonna fall into those habits as as time goes on.

Krystal Yates: 18:02

And you can never go wrong classifying somebody as an employee.

Mike Coffey: 18:05

Right.

Krystal Yates: 18:07

You can go wrong classifying somebody as a contractor from time to time. And then there's 2 more 2 more factors we haven't touched on, and that is the integral part to the business, which we talked about earlier. And then skill and initiative. And this is one we don't talk about a lot, but I think it's one of the vaguer pieces and it's one of the more confusing pieces. If I hire you, Mike, for your expertise in background checks and I just say, hey.

Krystal Yates: 18:40

I need somebody to come in and do background checks all day long at my business. I may be able to justify that, probably not, but I may be able to justify that as a contractor as opposed to Mike, you hire me in and saying, I need somebody to help me with this process inside my business. Crystal, let me teach you how we do things Right. And show you what we're doing. So that's really based on, are you training the employee?

Krystal Yates: 19:06

Excuse me. The worker? Are you training the worker? Or are they coming in knowing how to do their part? And don't get me wrong.

Krystal Yates: 19:14

I just had this conversation earlier today with one of my clients. We train everybody. I don't care how big of an expert you are in your field. We have to train people about how our businesses operate. But are we training them in what they're good at and what we hired them to do?

Krystal Yates: 19:32

Or are we training them in us, in our business?

Mike Coffey: 19:37

Yeah. Well, you mentioned, you know, I do get those consulting gigs where our client, usually a new background screening client will will bring me in for 2 or 3 days. I sit down with management, figure out what the risks are with different jobs, help them develop their their policies, what kind of criminal behavior is of concern for different kinds of roles and all of that. We build out, you know, our policies in a matrix of, you know, risk associated with different past behaviors for specific jobs, and I'm there 2 or 3 days. And then they come back and do some work here, preparing their policies for them.

Mike Coffey: 20:12

But that's a brief engagement with expertise that I have that they don't have. They don't need in house, and it's a consult but I also have a corporate entity behind me. I am paid through that corporate entity. I you know, and they're not paying my coffee, and it's not a flow through. It's going to my company.

Mike Coffey: 20:30

It's covering my overhead, my expenses. I'm running it like a business.

Krystal Yates: 20:34

And And multiple other clients.

Mike Coffey: 20:36

Right. Oh, yeah. For sure. So, so that's I think that's one of the big big tests here, but it is possible that you've got a bookkeeper who works for you 15 hours every week and she works for 2 other employers 15 hours a week. People do have multiple jobs.

Mike Coffey: 20:53

Right? And that doesn't automatically mean that that person is a contract bookkeeper, an independent contractor bookkeeper. You know, if if this is part of your business, you're paying them on a regular every, know, you pay them on your regular payroll schedule, those kind of things. All kinds. You know, you just gotta think I think employers need to think through.

Mike Coffey: 21:17

Where I'm seeing a lot of employers squawking right now, especially in the trades business, roofers and even plumbers and people like that. Well, our outside salespeople who knock doors for us and who who, you know, bring in customers, we've always paid them on a straight commission basis as 10.99, and now we've got to bring them in as employees. What are you talking about? I can't afford them as employees because I have to you know? And, you know, there I think there are misunderstandings about how you necessarily have to pay a, you know, salesperson.

Mike Coffey: 21:53

You know, minimum wage is one thing versus, you know, if, you know, you tell them maybe you'll earn 70,000 or a $100,000 this year based on your commissions. That's great. But it may not be that much more expensive to have them on as a w two employee. And if they're not producing, get rid of them anyway, either whether where you've got them as a, you know, 10.99 or a regular employee.

Krystal Yates: 22:15

That's right. That's right. We're making business decisions here. Another mistake I see and you talk about paying them on a payroll cycle. Our payroll companies are making it very easy to pay both 10.99 and and w2 employees at the same time but you're starting to blur lines.

Krystal Yates: 22:38

I'm working with a company right now who has a bunch of 10 90 nines and they get benefits. Many of them get benefits. I that that was my the look on my face as well. That doesn't sound like a and I love that you're trying to take care of your people. But for what you're doing, let's transition them into actual employees so the state and the federal government don't come after you as a business.

Mike Coffey: 23:08

Well, and as soon as you start calling them your employees or I start calling referring to them as my employees or my people, my people, suddenly we've you know, there's a tacit understanding there that they are mine, that, you know, I wouldn't want them going to work for my biggest competitor.

Krystal Yates: 23:24

Now let's talk about 2 of the biggest mistakes I see. The first one is I'm gonna hire you for the 1st 90 days as a contractor to to see if you work out. I'm not gonna bother to put you on payroll. You know what that does? That triggers an IRS audit when you send in a 10.99 and a w two for the same person, multiple people in the same year.

Mike Coffey: 23:44

Right. But everybody's got that idea of a probation period. Right? And and I think probation periods are stupid anyway. I I never thought they were good, you know, they've they've never, you know, if you're in an organ you a union organized environment, there's some relevance to what that means.

Mike Coffey: 24:01

But for a regular employee who's not in an organized environment, you bring them in, you train them to do the job, you you make the determination along the way. Maybe it's in 3 weeks you realize, oh, they're not gonna get this. Why are you gonna waste their time and yours to waiting out this 90 days? Let's get rid of them if they're, you know, help them, you know, move on.

Krystal Yates: 24:19

Right.

Mike Coffey: 24:20

We made a hiring mistake, and let's just not drag it out 3 months. But this whole 90 day thing is I don't know of any state where that's really relevant outside of an organized environment, and nothing in federal law suggests it's even make sense.

Krystal Yates: 24:33

It it isn't. The state is gonna treat it the exact same way as somebody who doesn't have it. They're gonna treat it the same way at 2 weeks as they are at 6 months, except they're gonna recognize that you moved quickly at 2 weeks.

Mike Coffey: 24:49

And let's take a quick break. Good morning HR is brought to you by Imperative. Bulletproof background checks with fast and friendly service. For 25 years, Imperative has helped risk averse clients make well informed decisions about the people they involve in their business, Whether that means very thorough pre employment background checks, due diligence for family offices or private equity firms, or any other kind of business transaction, if there are people involved, there's risk involved. We help businesses mitigate that risk.

Mike Coffey: 25:23

You can learn more at imperativeinfo.com. If you're an HRCI or SHRM certified professional, this episode of Good Morning HR has been preapproved for 1 half hour of recertification credit. To obtain the recertification information, visit goodmorninghrdot com and click on research credits, then select episode 148 and enter the keyword 1099. That's 1099. And if you're looking for even more recertification credit, check out the webinars page atimperativeinfo.com.

Mike Coffey: 25:59

And now back to my conversation with Crystal Yates. So you mentioned, I catch you off, though, but you you you you had mentioned, that and then the other one where you're you're gonna the other big mistake?

Krystal Yates: 26:13

The other mistake is I'm gonna hire you as a 10.99, but before I do, I'm gonna send you to LegalZoom or somewhere like that and make you form an LLC form an entity so I can pay the entity and not you directly. And that's a pretty little mask, and it creates some fog in between, but it doesn't change the basic fact that they are still meeting every other 1099 factor and should still be considered I'm sorry. Every other employee factor and should be being paid as an employee. And I have seen people do this for years years and not get caught or tell me other people in my industry do this and it's fine. And again, I'm gonna say, remember that the burden of proof is on you.

Krystal Yates: 27:07

And it's a very, very expensive mistake to make. And it's a very, very easy fix to put in place to do it the right way and never get find and back text.

Mike Coffey: 27:19

And I tell my clients, if you're looking at somebody and they're coming to you saying they're that, you know, they they wanna work as a consultant, as an outside, as a 10 99 independent contractor, all that. Okay. Show me your website. Show me your marketing materials. Show me the corporate entity.

Mike Coffey: 27:36

How long have you been in business? And let's let's establish and let's print that stuff off right from the Secretary of State's website. Let's let's capture those marketing materials. Let's do all of that to demonstrate. This person represented themselves as somebody who was out there setting themselves up as an independent business, and we hired them with that with that understanding, and we've got the documentation to to show that was in good faith, that we weren't trying to skirt, the FLSA in this process.

Mike Coffey: 28:06

But like you say, I also talked to I and I see it on some of the HR conversation boards. Somebody gets on and says, hey, I forgot this new employer and the first thing they told me was to go create an LLC and they're gonna pay me. I'll make more money this way, which means that they're not doing what withholding taxes. You're you're not gonna make money along more money in the long distance. So I think that's, that's kind of one of the issues.

Mike Coffey: 28:29

And so I think that boils back back to HR knowing what's going on, though, because how often in a larger organization, HR doesn't know what the IT department's doing. And so IT may say, oh, we need this expertise. We can't HR is not filling our role, so we're gonna bring in a contractor. And maybe they go through procurement, maybe they don't. Maybe they're just putting in as an expense or something, you know, accounting.

Mike Coffey: 28:52

So you need procurement, accounting. Everybody needs to be paying attention to when we're adding new vendors or anything like that to understand what's going on.

Krystal Yates: 28:59

What those vendors look like. And if a vendor is working for you 40 hours a week, if it's 2 week period, maybe it's a project. But if it's long term, you definitely wanna take a step back and go, we've paid this vendor an awful lot of money based on our understanding of this project. Let's double check this.

Mike Coffey: 29:20

And is this vendor one person, or are we getting multiple people? Do we have a project manager or maybe 2 or the people we've never met working in the background? That looks more like a vendor than just one person who shows up and does this thing for us on an ongoing basis day to day.

Krystal Yates: 29:36

And is sitting right next to 5 employees doing the same thing?

Mike Coffey: 29:41

Sending emails from our domain, answering phone calls in our office, directly on our phone lines and all that.

Krystal Yates: 29:48

Right.

Mike Coffey: 29:50

Well, we're almost out of time. Anything else you think would be really helpful If you find yourself as an employer

Krystal Yates: 30:04

trying to find justification or trying to make yourself fit within the loopholes of the verbiage because let's face it, it's gonna go to court. It's gonna get reviewed. It's still gonna be very expensive even if you win, but if you find yourselves trying to fit in that legislation, you're probably better off making that person an employee.

Mike Coffey: 30:39

Even if they're an employee for 6 months, 3 months, whatever. Just take them off. And now you've got them next time you need to engage with them, you bring them back in as a regular employee and you you pay you pay the taxes you do the withholding and you just you just manage it But the other thing that people need to remember is you don't pay independent contractors overtime, but you will pay this employee overtime if they work more than 40 hours and they're not FLSA exams. So but, well, thank you, Crystal. That's all the time we have, but I sure appreciate you joining

Krystal Yates: 31:13

me. Oh, Mike. I've enjoyed being on here and sharing one of my favorite topics.

Mike Coffey: 31:18

Good. Well, we'll see you soon.

Krystal Yates: 31:19

Thank you.

Mike Coffey: 31:21

And thank you for listening. You can comment on this episode or search our previous episodes at goodmorninghr.com or on Facebook, Instagram, or YouTube. And don't forget to follow us wherever you get your podcast. Rob Upchurch is our technical producer, and you can reach him at robmakespods.com. And thank you to Imperative's marketing coordinator, Mary Anne Hernandez, who keeps the trains running on time.

Mike Coffey: 31:45

And I'm Mike Coffey, as always. Don't hesitate to reach out if I can be of service to you personally or professionally. I'll see you next week, and until then, be well, do good, and keep your chin up.