Contractors, Compliance, and Churches: Rethinking NonProfit Hiring
The U.S. Department of Labor's (DOL) new independent contractor rule could lead to an increase in misclassification lawsuits and creates risk for employers who utilize independent contractors. For churches and religious nonprofits, which often rely on part-time, contract, or gig workers for various roles, understanding and complying with this rule is crucial to avoid potential legal issues.
What is the New Independent Contractor Rule?
Effective March 11, the new rule reverts to an earlier standard that requires organizations to consider a range of economic factors to determine if a worker is an employee or an independent contractor. This totality-of-the-circumstances approach does not give more weight to any one factor but rather looks at the whole picture, making it more complex than the previous rule, which focused heavily on control over the work and the worker's opportunity for profit or loss.
Key Factors to Consider
Under the new rule, the following six factors should be considered when classifying a worker:
Control Over Work: Does the organization control how the work is done?
Opportunity for Profit or Loss: Can the worker profit or incur losses based on their managerial skill?
Skill and Initiative: What level of skill and initiative is required for the work?
Permanence of Relationship: Is the working relationship continuous or project-based?
Investment in Equipment or Materials: Has the worker made a significant investment in equipment or materials?
Integral Part of Business: Is the service provided by the worker an integral part of the organization’s business?
Potential Impact on Churches and Religious Nonprofits
For many churches and religious nonprofits, this new rule could mean re-evaluating how they classify their workers, particularly those in roles such as musicians, childcare workers, or administrative staff who may currently work on a contract basis. Misclassifying these workers could lead to legal challenges and financial penalties, including back pay for minimum wage and overtime and impacts to the reputation of the organization.
Action Steps to Ensure Compliance
Review Worker Classifications: Conduct a thorough review of all current workers classified as independent contractors. Assess their roles against the six factors outlined by the DOL. This should be done systematically and consistently across the entire organization.
Update Contracts and Agreements: Ensure that all contracts with independent contractors clearly outline the nature of the working relationship, focusing on the factors that support an independent contractor status. Consider including class-action waivers in arbitration agreements to protect against potential lawsuits.
Establish Clear Policies and Procedures: Create or update internal policies that define how to engage and manage independent contractors. Standardize the process to avoid inconsistencies that could lead to misclassification.
Monitor Legislative Changes and Gain Guidance: Stay informed about any legal challenges to the rule and potential changes. The legal landscape around worker classification is dynamic, and future administrations may alter the regulations again. Given the complexity of the new rule and the likelihood of legal challenges, consult with experts who specialize in human resources for churches and nonprofits.
Conclusion
Navigating the new independent contractor rule requires careful consideration and proactive management to avoid compliance issues. At Fortress Coaching + Consulting we specialize in church and nonprofit Human Resources consulting and provide tools and resources that protect your ministry and support your growth. We understand the factors involved and can help you in reviewing worker classifications, updating agreements, and structuring your team for success. Let us help you find protection from costly lawsuits and ensure you maintain the flexibility needed to fulfill your mission.