On January 7, 2021, the U.S. Department of Labor (DOL) published a final rule clarifying independent contractor relationships. Specifically, the rule reaffirms using the “economic reality” test to determine whether an individual is in business for themselves (independent contractor) or is economically dependent on a potential employer for work.

The DOL identifies two “core factors” in making this determination: (1) the nature and degree of control over the work; and (2) the worker’s opportunity for profit or loss based on initiative and/or investment. There are three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification, including (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer; and (3) whether the work is part of an integrated unit of production. The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible. The final rule also provides six fact-specific examples applying the factors.

The rule was set to go into effect on March 8, 2021. However, because of the pending regulatory review ordered by the current presidential administration, it is now proposed to take effect May 7, 2021, assuming it passes review. At this point, that would be a big assumption. The longer the rule is delayed the more likely there will be legal challenges to the rule. Continue to look for updates on this developing topic.

Action Items

The U.S. Department of Labor (DOL) issued a flurry of opinion letters at the end of the last administration. Some still stand and some were withdrawn. Here is a summary of some of the key opinions.

For employers hoping to hire foreign nationals for specialty occupations, the process for a worker to obtain an H1-B visa can be quite a journey. This year, the USCIS published a new regulation changing the former “lottery” system awarding H1-B visas to a wage-based allocation system, instituting new challenges for employers.

Each year, there is a cap maximum of H1-B visas available for specialty occupations that require a bachelor’s degree, and a separate cap for positions requiring a graduate degree from a United States university. Previously, a lottery system distributed additional visas to employers picked at random. On January 7, 2021, a final rule was issued revising the lottery system into a four-tiered list based on wages, with employers offering the highest wages preferred over those offering lower wages.

Specifically, employers must offer H1-B Visa employees a prevailing wage as set by certain salary surveys, most frequently used are those issued by the U.S. Department of Labor (DOL). Employers offering the highest wages (level 4) will have first priority, descending down the wage levels until all 85,000 visas are exhausted.  Employers who do not utilize the DOL surveys will be classified in the lowest tier (level 1) regardless of the wage actually offered.

The final rule was set to go into effect March 9, 2021. However, with the advent of the new White House administration, the rule’s effective date has been extended to December 31, 2021 to give adequate time for implementation and further evaluation of the rule. Continue to look for updates on this topic.

Action Items

In Clark v. AMN Services, the Ninth Circuit Court of Appeal stated that certain per diem benefits were not true business expenses and should be included in the calculation of employees’ regular rate of pay for overtime purposes. There, per diem employees who traveled for work purposes were paid both an hourly wage and a weekly per diem benefit, allegedly to cover the cost of meals, incidentals, and housing while working away from home; however, the benefit payments varied related to the work performed.

The court said that determining whether a per diem must be included in the regular rate of pay is a case-specific inquiry that turns on whether the payments function to reimburse employees for expenses or instead operate to compensate employees for hours worked. To this end, it looked at several factors, including whether payments increase, decrease, or both based on time worked, whether the payments are made regardless of whether any costs are actually incurred, whether the employer requires any attestation that costs were incurred by the employee, and whether the payments are tethered specifically to days or periods spent away from home or instead are paid without regard to whether the employer is away from home.

Ultimately, the tie of the per diem deductions to shifts not worked regardless of the reason for not working; the “banking hours” system; the default payment of per diem on a weekly basis, including for days not worked away from home, without regard to whether any expenses were actually incurred on a given day; and the payment of per diem in the same amount, but as acknowledged wages, to local employees who did not travel indicated to the court that the payments functioned as compensation for hours worked rather than as reimbursement for expenses incurred.

Action Items