WORKER CLASSIFICATION ISSUES
for Non-Profit Employers
June 24, 2014
David L. Weinstein
Faegre Baker Daniels LLP
Copyright © 2014
Faegre Baker Daniels LLP
For-Profit v. Non-Profit Employers

There are few differences between the employment-related legal
obligations of for-profit employers and non-profit employers.

Few administrative agencies, courts, judges or juries will decide
employment claims in your company’s favor merely because of its
status as a non-profit employer.
2
Most Employment Laws Governing For-Profit Employers Apply
Equally to Non-Profit Employers


“At-will” employment provides the same limited protection to both forprofit and non-profit employers.
Non-profit employers are subject to the same or similar obligations as
for-profit employers regarding:
Unemployment
Insurance Benefits (similar)
Workers Compensation Benefits (similar)
Discrimination Prohibition Laws (same)
Employee Benefit Laws (same)
Safety and Health Laws (same)
Wage-Hour Laws (same)
Classification of Workers (same)
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Unemployment Benefits and Non-Profit Employers

Myth: Non-profit employers are not subject to the unemployment
insurance system – FALSE!

Non-profit employers can register with the Illinois Department of
Employment Security (“IDES”) to become a “reimbursable employer”
and pay the full amount of each valid claim as it is made.

Alternatively, non-profit employers can register with IDES and pay
quarterly contributions – the same as for-profit employers.
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Workers Compensation and Non-Profit Employers

Myth: Non-profit employers are not subject to the workers
compensation system – FALSE!

Non-profit (and for-profit) employers can apply with the Illinois
Workers Compensation Commission to self-fund workers
compensation claims.

Alternatively, non-profit employers can purchase workers
compensation insurance – the same as for-profit employers.
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Worker Misclassification

Governmental Agencies have begun unprecedented crack down on
independent Contractor vs. Employee Classification.

Employee-side lawyers file more worker misclassification lawsuits
than discrimination suits.
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Why Does Worker Classification Matter?

Proper classification determines a company’s obligations for

Minimum wage and overtime requirements

Payroll taxes

Benefit plan eligibility

Unemployment insurance contributions

Immigration documentation

Workplace discrimination

Labor organizing

Occupational health and safety compliance
 Federal Agencies (IRS, DOL) estimate annual tax loss in billions.
 State Agencies (Revenue, Unemployment) project annual tax loss in millions.
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What Determines Whether a Worker is Properly Classified as an
Independent Contractor?

No universal test.

Satisfying standards of one government agency (e.g., IRS) is not a
defense to violating more stringent standards of another agency (e.g.,
IDES).

Key factors generally are:
 Behavioral Control
 Financial Control (“Economic Realities”)
 Worker’s Relationship with Company
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IRS Factors (Rev. Rul. 87-41) to Determine
Independent Contractor Status:
Let’s Play 20 Questions
1.
2.
3.
4.
5.
Is the worker required to follow the company’s instructions?
Does the company provide training to accomplish the work?
Are the worker’s services integrated into the company’s
regular business?
Does the company require the worker to perform services
personally, as opposed to assigning work to others?
Does the company hire, supervise and pay the workers’
assistants?
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IRS Factors (Rev. Rul. 87-41) to Determine
Independent Contractor Status:
Let’s Play 20 Questions (continued)
6.
7.
8.
9.
10.
Is there a continuing relationship between the company and
the worker?
Does the company set the worker’s hours?
Does the company require the worker to work full-time?
Does the worker work at the employer’s place of business?
Does the company set the order or sequence of the worker’s
work?
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IRS Factors (Rev. Rul. 87-41) to Determine
Independent Contractor Status:
Let’s Play 20 Questions (continued)
11.
12.
13.
14.
15.
Is the worker required to provide oral or written status reports to the
company?
Is the worker paid by the hour, week or month, rather than upon
completion of the project?
Is the worker reimbursed for business or travel expenses?
Does the company provide the worker with tools and material?
Has the worker made a significant investment in performing the
services?
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IRS Factors (Rev. Rul. 87-41) to Determine
Independent Contractor Status:
Let’s Play 20 Questions (continued)
16.
17.
18.
19.
20.
Can the worker realize a profit or loss?
Does the worker work for more than one company at a time?
Does the worker make his or her services available to the
general public?
Does the company have the unilateral right to discharge the
worker?
Does the worker have the right to terminate the relationship
without being liable under the contract?
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Unemployment Insurance Statutory Factors
for Independent Contractor Classification


It’s as “simple” as A-B-C (e.g., 820 ILCS 185/1-999)*:
A. Whether the worker is free from control in performing services, both by contract
term and in fact
B. Whether the services are outside the company’s usual business and performed
off premises
C. Whether the worker is engaged in an independent trade, occupation,
profession or business – and providing services to more than one company
Any doubt is resolved in favor of classifying the worker as an employee.
* The ABC (or A and C) test has been adopted in Alaska, Arkansas, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana,
Louisiana, Maine, Maryland, Massachusetts, Nebraska, New Hampshire, New Jersey, New Mexico, Oregon, Pennsylvania, South Dakota,
Tennessee, Utah, Vermont, Virginia and West Virginia.
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Classification of Interns and Volunteers – Federal and State Wage-Hour
Department of Labor View Interns and Volunteers as Employees Unless:
1.
The internship/volunteer experience is similar to training in a
formal educational environment.
2.
The internship/volunteer experience primarily benefits the
intern/volunteer, and not the employer.
3.
The intern/volunteer does not displace/replace regular
employees.
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Classification of Interns and Volunteers – Federal and State Wage-Hour
Department of Labor View Interns and Volunteers as Employees Unless:
4.
The employer derives no immediate advantage from activities of
the intern/volunteer.
5.
The intern/volunteer is not necessarily entitled to a job after the
end of the experience.
6.
The intern/volunteer understands he/she is not entitled to
wages.
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Exceptions to Intern/Volunteer Classification
Rules Are Permitted Only If:

An employer is a religious organization and the intern/volunteer
does primarily religious activities.

An employer is a local, state or federal governmental unit.
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What Can Your Company Do to Limit
Exposure for Worker Misclassification?

Audit all workers’ current classifications and assess risks.

Hire workers as employees or through staffing agencies.

Engage workers as independent contractors and intern/volunteers
only after thorough analysis.
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Thorough Analysis Includes:
Before engaging an Independent Contractor, confirm the contractor has - -

IRS-assigned Federal Employee Identification Number (FEIN), not
a social security number.

Workers compensation insurance certificate of coverage.

Business-related information: Business name, listings, website
and e-mail address, telephone other than cellular number, client
references/lists.
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Thorough Analysis Includes:
Before engaging an Intern/Volunteer, confirm your Company has - -

Insurance coverage: workers compensation and comprehensive
general liability.
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Remember:
All doubts about Worker Classification likely will be
resolved in favor of finding the worker is an employee, not an
independent contractor or an intern/volunteer.
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Questions?
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