There is a wide variation, state by state, as far as the treatment of the independent contractor versus employee classification issue. Laws regarding independent contractor status and unemployment insurance benefits, workers’ compensation coverage, overtime, etc. vary widely from state to state. Yes, there are also Federal laws which impact independent contractor status; but, increasingly, states are enacting new and creative laws requiring employers to “jump through hoops” as far as permitting independent contractor usage.

The latest example of a state passing a new law combatting independent contractor misclassification is the North Carolina Employee Fair Classification Act.

BECAME EFFECTIVE DECEMBER 31, 2017: North Carolina Governor Roy Cooper signed this new law on August 11, 2017. It became effective December 31, 2017.

INDEPENDENT CONTRACTOR TEST IS STILL THE SAME: This new law does not change the legal test for independent contractor status in North Carolina. North Carolina still uses a classic independent contractor test which basically mirrors the IRS common law test (commonly known as the “control and direction test” or “the 20 factor test”).

RESPONSIBILITIES OF THE EMPLOYEE CLASSIFICATION SECTION: Under this new law, the Employee Classification Section of the North Carolina Industrial Commission serves as the primary point of contact for employees, businesses and citizens who wish to report suspected instances of worker misclassification. The Employee Classification Section will provide information about each instance of misclassification of independent contractors to the North Carolina Department of Labor, the North Carolina Division of Employment Security, the North Carolina Department of Revenue, and the North Carolina Industrial Commission.

The new Employee Classification Section will investigate reports of misclassification and also coordinate with other state agencies in the prosecution of employers and individuals who fail to pay civil assessments or penalties regarding misclassification.

The new Employee Classification Section is also responsible for educating employers about independent contractor classification issues.

ALL NORTH CAROLINA EMPLOYERS MUST POST A NOTICE: Of course, it is still perfectly legal for employers in North Carolina to use independent contractors, but North Carolina employers now have an additional legal responsibility under this new law. Every employer in North Carolina must now POST A NOTICE that includes the following specific language:

1. Any worker who is defined as an employee under the law shall be treated as an employee.

2. Any employee who believes that he/she has been misclassified as an independent contractor may report the suspected misclassification to the North Carolina Industrial Commission’s Employee Classification Section by phone, email or fax (the notice must provide the contact information for the Employee Classification Section).

3. When filing a complaint, please provide the physical location, mailing address, and if available, the telephone number and email address for the employer suspected of employee misclassification.

States are trying to grapple with the growing outcry about supposed instances of independent contractor misclassification. Various industries are being torn apart by differences of opinion over the use of independent contractors. We can expect to see more state action in the coming months and years as states try to set up laws, systems, procedures, and agencies to control the growing use of independent contractors, which is sure to continue.

For assistance with evaluating independent contractor usage to reduce risk or for help with independent contractor hearings or related issues, contact Attorney Nancy E. Joerg who can be reached at Wessels Sherman’s St. Charles, Illinois office: (630) 377-1554 or email her at najoerg@wesselssherman.com.