Forcing building material dealers and distributors to distance themselves from subcontractors, two new federal initiatives by the Obama administration were proposed this summer. The proposals could simultaneously force both building materials dealers and distributors to pay closer attention to when and how their in-house staff do their jobs, a human resources consultant warns.
Douglas Delp's comments to ProSales on Aug. 25 add to the alarms sounded by associations and consultants regarding a pair of Obama Administration efforts launched this summer. One is widely interpreted as making it harder for companies to treat subcontractors as independent entities rather than as employees. The other would remove millions of employees nationwide from the list of people regarded as being exempt from overtime pay.
Delp, who owns a human resource outsourcing company and benefit brokerage firm in the Philadelphia area, says he recommends his clients limit their use of subcontractors to only those people who have incorporated businesses. "If they're incorporated they should be doing some of their own marketing, have their own website," Delp said. "And the key is that they have other clients, that [you're not] keeping them 100% busy."
"You need to spread the work around," Delp stressed. "I know that if you talk to a builder, they’ll say they don’t want to do that--'I keep my subs busy, they’re always available, and I can give them enough work.' But that is an employee relationship, plain and simple. and this recent opinion letter brings that out."
Delp was referring to an administrator's opinion issues July 15 by the head of the Labor Department's Wage and Hour Division. As with other groups, the National Lumber and Building Material Dealers Association's analysis of that opinion, distributed Aug. 25, said bureaucrats appear likely to start looking more closely at the economic relationship between an employer and a subcontractor to determine whether that sub truly is independent. If it or other agencies conclude the sub actually should be regarded as an employee, then the hiring company is on the hook for such costs as back taxes, worker's compensation costs, and possibly overtime pay.
Delp said he's seen employers get in trouble when business slows, the employer stops using the independent sub, and the sub mistakenly files for unemployment insurance--a benefit they cannot claim since they're self-employed. "I've heard the Labor Department is looking into this and the IRS is become more aggressive in its audits," he said. One key to avoid that is to stress to the subs that they are independent workers and thus can't do things like go to the unemployment office. That could lead to resentment, he said, "but it comes down to [this]: if you keep your subs 100% busy and employed, that is basically an employee relationship.”
(For more advice on staying out of trouble regarding subs see consultant Judith Miller's latest guidance.)
Delp also sees potential resentment if the Obama Administration's rule on exempt employees takes effect. Currently, workers in certain jobs who make over about $23,660 a year can be considered as management and thus exempt from overtime pay. The proposed rule change would raise that threshold to about $48,000.
The trouble here, Delp said, is that with an exempt employee, both the worker and the employer can be much more flexible with regard to working hours. For instance, he said, "If I leave early for a doctor’s appointment, I don’t lose hours and I get paid for that. I might go home, but I might do a bit of work at home. So now when you’re increasing that annual threshold you’re not going to have people who qualify for that. What are you going to do? Bump ‘em up to that level? Pay ‘em hourly, but say all that flexibility is going away?" Some employees also could get insulted if they have to fill out time cards, he added.
Ultimately, "I just don’t see this change as viable," Delp said. "This administration or future administrations will have to take a look at working from home, working electronically, and being more flexible. This doesn’t match well."