Independent Contractors or Employees? What to Know About the July 1st Law Change
Organizations are fueled by people. Certain businesses rely on independent contractors (also known as 1099s) to help get work done. These individuals can range from bookkeepers who produce reports to IT teams that are engaged for computer issues.
Unfortunately, management’s intent in classifying workers is largely immaterial for purposes of liability. Employee classification is a fact-intensive analysis that requires compliance with both federal and state requirements. Earlier this year, the Department of Labor (DOL) announced that it plans to rescind the 2024 Independent Contractor Rule (still in effect) that governs the classification of workers on the federal level.
Effective July 1st, employers with team members in Virginia will also need to adhere to amendments to the Virginia Wage Misclassification Law or “VWML” (Va. Code § 40.1-28.7:7) and Virginia Wage Payment Act or “VWPA” (Va. Code § 40.1-29). These amendments expand the number of remedies (and therefore penalties) available to aggrieved employees, while also cementing existing Virginia law. I recommend that employers and employees keep the following in mind:
The VWML amendments solidify that the Internal Revenue Service (IRS) guidelines on independent contractors govern.
Whether a worker is an independent contractor or an employee is determined by a multi-factor test set forth in the IRS guidelines. While it includes twenty (20) factors, the crux of the test surrounds the control of the workers’ workload and finances. For example, Amazon drivers were held to be employees – rather than independent contractors – given Amazon’s control over job duties. Management should also be mindful of the DOL’s upcoming rule change to ensure compliance on a federal level.
Employees now have 3 years from a wage violation to sue – and employers must maintain pay stubs or online accounting records for 3 years.
The VWPA amendments clarify that employees can file suit within 3 years from the accrual of a cause of action, an increase of one year. Similarly, the amendments require that employers keep pay stubs or online accounting for three years from the time worked (while those working with public contracts must preserve records for six years). I recommend that employers communicate with their payroll providers to ensure access to the applicable data, given the additional recordkeeping requirement.
Bonuses and commissions are now wages under the VWPA.
Before the amendment, bonuses and commissions were left out of the definition of “wages.” The amendment provides additional remedies to employees who believe that they were denied owed bonuses or commissions. I recommend that employers review their policies surrounding payment of bonuses and commissions in order to effectively comply.
Feel free to reach out to me to discuss your team’s classification.
Theodora Stringham focuses her practice on bringing solutions-oriented representation and zealous advocacy to complex issues impacting individuals, organizations, and businesses. Ms. Stringham seeks to understand clients’ concerns and provide thorough and strategic options aimed at achieving their goals. She has been recognized for her work in the Real Estate, Labor and Employment, and Commercial Litigation practice areas, providing counseling and litigation support for a wide variety of concerns.