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Why Properly Classifying Your Workers Matters

Personal liability for Business Owners and Managers: the definition of “employer” under the Fair Labor Standards Act (FLSA) can be applied to managers and business owners so beware of proper procedures for calculating/paying overtime, proper classification of employees as exempt (aka salaried) and the other requirements under the FLSA. For more information, read The Daily Record article, “Workplace Issues: 2nd Circuit Defines ‘Employer’ Under FSLA.”

The ABC Test for Classifying Employees

Also beware of misclassifying Independent Contractors. The State of Nevada has increased audit efforts and has given more fines and penalties for this kind of misclassification. Nevada Unemployment Compensation Law does not define “independent contractor.” It uses what is commonly referred to as the “ABC” test. This test is unique to the Unemployment Compensation Program. Unless otherwise specifically excluded, payment for services is deemed subject to unemployment taxes unless the following conditions are met. All three conditions must be met in fact; a written contract alone is not sufficient. The burden of proof rests upon the employer to demonstrate the existence of these conditions:

A. The person has been and will continue to be free from control or direction over the performance of the services, both under his contract of service and in fact; and

B. The service is either outside the usual course of the business for which the service is performed or that the service is performed outside of all the places of business of the enterprise for which the service is performed; and

C. The service is performed in the course of an independently established trade, occupation, profession or business in which the person is customarily engaged, of the same nature as that involved in the contract of service.

If you cannot demonstrate the above conditions, the person is an employee. A written contract, in itself, does not establish independent contractor status. If in doubt, contact the Contributions Section of the Employment Security Division for a ruling.

For more guidance on proper classifications, contact us.

Melissa Marsh, HR Consultant and Founder of HRinDemand, is a proven HR professional with over 15 years experience in the field who works with businesses to streamline and improve human resources processes, policies and procedures. For assistance with employee related issues, contact HRinDemand directly at (775) 400-1322.

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