New Georgia law raises a question: is your independent contractor now your employee?

In May 2022, House Bill 389 (HB 389) was signed into law and became effective as of July of this year. HB 389 brought significant updates to the definition of employment in Georgia, ostensibly expanding the class of persons who qualify for employer contributions to unemployment. But, HB 389 can be expected to have broader ramifications for employers, including a potential expansion liability for unpaid taxes, minimum wage violations, workers’ compensation claims, and other costs related to hiring an employee.

Specifically, HB 389 expands the definition of employee to include any worker who provides a business services in exchange for wages, unless the worker is free from the business’ control and direction. HB 389 outlines several factors pertinent in determining whether a worker is free from control and direction, including whether the worker:

  • is allowed to work for other employers simultaneously;
  • is able to determine his or her own work schedule;
  • can freely choose to accept or reject work without consequence;
  • receives minimal instructions and no direct oversight or supervision, including in regard to the location where services are to be performed and any requested deadlines;
  • is not held to a minimum number of hours or for sales, minimum number of orders;
  • has no territorial restrictions on their work; 
  • is not required to perform, behave, or act, or is compelled to perform, behave, or act in a specified manner for the performance of services for wages as determined by the Commissioner of Labor; and
  • has wages that are not tied to his or her performance or actions.

It is unclear whether a worker must satisfy all of these factors to be considered an independent contractor, or if less than all, which factors may be considered more determinitive than others in a balancing test. Historically, in tracking substantially similar elements, the Georgia courts have applied a balancing test, but whether the courts will do so now in view of this legislation remains an open question. Employer’s should also prepare for ensuing regulations and guidance from the Georgia Department of Labor, including on the factor expressly left to the Commissioner of Labor to settle.

Helpful to employers, HB 389 adds to other exemptions to the definition of employment. The first relates to music industry professionals, to the extent certain conditions are met in the services contract. And the second concerns services provided through a network company, like Uber or Lyft. Again, specific requirements must be met in the services contract. 

If a business utilizes independent contractors that meet HB 389 exemption requirements, it still imposes new requirements. These include the business keeping a record of how each worker is classified and why.  

Finally, HB 389 imposes serious penalties for employers who misclassify workers. The fines depend on the size of the business, ranging from $2,500 per worker for a business with fewer than 100 employees, and up to $7,500 per worker for a business with 100 or more employees. 

HB 389’s restriction on the class of individuals who may be counted as an independent contractor may well have knock-on consequences for business, including under federal and state wage and tax laws. Practically, if a worker is an employee under HB 389, then that worker is an employee for all other purposes too. These changes will therefore likely have cascading effects on other areas, like wage-and-hour provisions, as previous independent contractors are included under the employee umbrella.

So what should a business that operates in Georgia do? Consider:

  • A compliance review, examining the business’ roster of independent contractors to determine whether they might be employees under the new law, and whether the business has the appropriate systems in place to capture required information.
  • Drafting new independent contractor agreements that follow HB 389’s requirements and outline the factors on which the business will need to depend in documenting and defending an independent contractor classification.
  • Setting up effective policies and procedures that ensure your business is consistently recording the information required to prove a worker’s independent contractor status.
  • Engaging experienced counsel who can help provide guidance and advice in this critical and developing area.

Don’t get tripped up. Properly documenting and recording factors necessary to establishing the independent contractor relationship are more important now than ever. The attorneys at Baker Jenner LLLP are experienced in guiding clients through the tangle of laws and regulations that affect their day-to-day operations. Contact us today to schedule your consultation, or for any of your other employment law needs.

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