President Obama on Labor Day signed an Executive Order that will require federal contractors to provide their employees with paid sick leave. The order is effective in 2017, and will permit employees working on federal contracts to earn at least one hour of paid sick leave for every 30 hours worked. The Order's Fact Sheet can be found here.
A San Francisco-based driver for smartphone-based ride-hailing service Uber is an employee, not a contractor, according to a ruling by the California Labor Commission. The ruling, filed on Tuesday in state court in San Francisco, said Uber is "involved in every aspect of the operation." It is the latest in a host of legal and regulatory challenges facing Uber in the United States and other countries.
Uber employs its drivers as third-party contractors, operating as a logistics company. Uber has argued that it is not a transportation or taxi company, but rather a software platform that matches customer demand with supply. The ruling turns Uber into a transportation startup instead of a logistics software company. It is now in a position to face a number of legal obstacles, as well as rising costs of employing those drivers directly and offering them employee-related benefits.
Uber v. Berwick.
Hawaii employers continue to take a risk when they classify someone performing services for them as an independent contractor instead of an employee. Because employers owe contractors far fewer obligations than employees, employers risk each of the following if a court determines that a misclassification occurred:
1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer?
3. Type of Relationship: Are there written contracts or employee-type benefits (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
If you are considering classifying someone performing services for you as an independent contractor, your answers to these three questions will determine whether that individual is a bona fide contractor, or instead, is an employee.
When in doubt, err on the side of caution. The government applies these tests aggressively to find employee status whenever it can. You should too, and the risks are too high to make a mistake.
A. Hire a Contractor or an Employee? Independent contractors and employees are not the same, and it’s important to understand the difference. Knowing this distinction will help you determine what your first hiring move will be and affect how you withhold a variety of taxes and avoid costly legal consequences.
B. What Is the Difference?
An Independent Contractor:
If your independent contractor is discovered to meet the legal definition of an employee, you may be required to:
1. The extent to which the services rendered are an integral part of the principal’s business
2. The permanency of the relationship
3. The amount of the alleged contractor’s investment in facilities and equipment
4. The nature and degree of control by the principal
5. The alleged contractor’s opportunities for profit and loss
6. The amount of initiative, judgment, or foresight in open market competition with others that is required for the success of the claimed independent contractor
7. The degree of independent business organization and operation
The purpose of the Hawaii Workers' Compensation Act, HRS Chapter 386, is to provide compensation and medical care to employees who suffer an injury or disease "arising out of and in the course of employment."
All Hawaii employers with employees must provide workers' compensation coverage for their employees. Employers can provide coverage by either obtaining workers' compensation insurance through an insurance carrier or obtaining approval for self-insured status.
Claims for compensation must be filed in writing within two years after the effects of the injury become manifest and within five years from the date of the accident. An injury is compensable under the workers' compensation law if: (1) The injury arose out of employment, and (2) The injury was sustained in the course of employment.
Within seven working days after an employer has knowledge of an injury which causes an absence for more than one day or requires medical attention beyond first aid, the employer must report the injury on a WC-1 Report of Industrial Injury Form.
Unless rebutted by substantial contrary evidence, it is presumed under Hawaii law that: (1) The employee's claim is for a covered work injury; (2) Sufficient notice of the injury was given to the employer; (3) The injury was not caused by the intoxication of the injured employee; and (4) The injury was not caused by the willful intention of the injured employee to injure her or himself.
In order to overcome or rebut the presumptions, the employer is required to offer up substantial evidence that the claim is not for a work-related injury.
Four types of benefits are available to employees who suffer occupational injuries or diseases: (a) indemnity benefits; (b) medical benefits, (c) vocational rehabilitation benefits; and (d) death benefits. If there is a dispute whether compensation is due or the amount that is due, either party may request a hearing. Hearings are scheduled before a hearing officer.
Within 60 days after a hearing, the hearings officer will issue a determination including findings of fact, decision and order. Within 20 days after the mailing of the award, a party may appeal the decision to the Labor and Industrial Relations Appeals Board for a de novo review of the award. Either party may appeal a final decision by the Appeals Board to the Intermediate Court of Appeals within 30 days.
Generally, recovery under Hawaii's workers' compensation law is an employee's exclusive remedy for work-related injuries or diseases. However, an employee generally cannot sue his or her employer or a co-worker for damages resulting from occupational injuries caused by the employer's or co-worker's negligence. This does not necessarily preclude injuries resulting from intentional acts, for example.
Unlike the minimum wage and overtime provisions of the federal Fair Labor Standards Act and the Hawaii Wage and Hour Law, Hawaii’s Payment of Wages Law, HRS Chapter 388, does not address the minimum amount per hour employees should be paid or circumstances under which overtime pay is earned. Rather, the statute specifies how employees should be paid.
Every employer must pay all wages due to its employees at least twice during each calendar month. Pay days must be designated in advance by the employer and may not be more than seven days after each pay period ends.
Employers wishing to establish regular pay days less frequently than semimonthly (but at least once a month) must apply with the Hawaii Department of Labor and Industrial Relations (“DLIR”) for permission to do so. Employers wishing to issue paychecks more than seven days, but within fifteen days, after the close of payroll period must also receive permission from the DLIR.
Employees that are terminated, with or without cause, must receive payment for all wages earned up to the date of termination, at the time of termination. However, if the termination occurs at a time and under conditions which prevent the employer from making immediate payment, the payment is due the next working day after the termination.
Employees who resign must receive payment for all wages earned as of the date of resignation, no later than the next regular payday. Payment can be made through regular channels or by mail if the employee requests. If the employee gives at least one pay period's advance notice of resignation, the employer must pay all wages earned on the employee's last day of work.
If an employee is suspended as a result of a labor dispute (strike) or is laid off, the employer must pay all wages earned as of the date of the suspension or layoff to the employee no later than the next regular pay day. Payment can be made through regular channels or by mail if requested by the employee.
If there is a dispute between an employer and employee over the amount of wages due, the employer must pay, without condition and within the time limits set by law, all wages the employer believes are due. The employee is then entitled to take appropriate action for any balance he/she claims is still due.
An employer may not condition payment of any wages due on execution of a release by an employee. Furthermore, acceptance by an employee of any payment does not automatically constitute a release or accord and satisfaction with of any dispute between the employer and employee over amounts due.
Employers may not deduct, retain, or otherwise require to be paid, any compensation earned by an employee except where it is required by federal or state law, or court or authorized in writing by the employee.
The following may not be deducted from an employee's wages (regardless of whether it is authorized) or regulated to be borne by the employee:
2. Cash shortages in a common money till, cash box, or register used by two or more persons; or cash shortages in a money till, cash box, or register under sole control if the employee is not given an opportunity to account for all monies received at the start of a shift and all monies turned in at the end of a shift;
3. Fines, penalties or replacement costs for breakage;
4. Losses due to acceptance by an employee of checks which are subsequently dishonored if the employee is given discretion to accept or reject any check;
5. Losses due to defective or faulty workmanship, lost or stolen property, damage to property, default of customer credit, or nonpayment for goods or service received by customer if such losses are not attributable to the employee’s willful or intentional disregard of his/her employer’s interests; or
6. Medical or physical examinations or medical report expenses which accrue due to services rendered to an employee or prospective employee, where such examination or report is requested or required by the employer or prospective employer or required by any law or regulation of federal, state or local governments or agencies.
Wrongful Withholding of Wages – Hawaii Employment Law
Hawaii employers may not deduct, withhold or otherwise require employees to pay any part of their compensation unless required by law, court process, or authorized in writing by the employees. An employee, however, cannot authorize or be required to bear the following:
The Hawaii Prepaid Health Care Act, Chapter 393, Haw. Rev. Stat., requires private sector employers to provide minimum prepaid health care coverage to eligible employees.
Employees become eligible for coverage once they work for an employer at least twenty (20) or more hours per week for four (4) consecutive weeks and earn a monthly wage of at least 86.67 times Hawaii's minimum hourly wage. Employees must be covered at the earliest possible time permitted by the health care contractor after meeting eligibility requirements.
The employer must notify eligible employees of their rights under the Act, provide advance notice of any changes, and provide the employer's health care contractor's name, plan number, group number, effective date of coverage, and
employee's cost share for funding health insurance premiums.
Employees ineligible for coverage under the law include: (1) a "seasonal" or "domestic" worker, as defined in the Act and regulations; (2) an insurance agent or solicitor; (3) a real estate salesperson or broker paid solely by commission; (4) individual working for his or her spouse, child, or, if under the age of 21, for a parent; and (5) those who, pursuant to teachings, faith, or belief of any group, depend upon prayer or other spiritual means for healing. Employees subject to the terms of a collective bargaining agreement are not covered by the law.
In addition, employees may voluntarily elect an exemption from coverage if they are: (1) covered by a federally-established health insurance or prepaid health care plan (e.g., Medicare, Medicaid, or benefits for military dependents or
military retirees and their dependents); (2) covered as dependents under another qualified health care plan; or (3) recipients of public assistance, or covered by state laws governing medical assistance.
To elect an exemption, the employee must complete form HC-5 and submit it to the employer. The employer must file the completed HC-5 with the Hawaii Department of Labor and Industrial Relations (DLIR) by December 31 of each
Employees must notify their employer if their exemption terminates. The employer must then provide coverage.
An employee who works the required period and earns the required monthly wage for each of two (2) or more employers must designate the principal and the secondary employers on Form HC-5 and submit the form to the employers. The
employers must then file the form with the DLIR.
The employer paying the highest amount in wages is deemed the "principal employer." An exception to this rule applies
if the employer who employs the employee for at least thirty-five (35) hours per week does not pay the most wages.
Under this exception, the "principal employer" is not determined by the amount of wages paid the employee, but by whom the employee decides is the "principal employer." The employee's designation of principal employer is binding for one (1) year or until a change in employment, whichever occurs first.
The principal employer must provide the required coverage. The secondary employer need not provide coverage until notified that it has become the principal employer.
An employee may waive the benefits required by the Act by requesting the waiver in writing on Form HC-5 and receiving approval from the DLIR that the employee has other coverage under a prepaid health care plan which provides the required benefits. Haw. Rev. Stat. §393-21 (a) & (b). The waiver is binding for one year and is renewable for one-year
If the employer directly or indirectly coerces or attempts to coerce an employee to make a waiver, the employer may be fined up to $200.
Employers must provide "eligible employees" with an approved health care plan from a health care contractor or an approved self-insured health care plan, and employers must furnish to employees written evidence of plan coverage.
If an employer offers more than one "approved plan" to employees, it must only pay the cost of the least expensive plan in the event an employee elects the more expensive coverage. The employee who elects more expensive coverage must then pay the difference in premiums.
Eligible employees: The employer is not required to provide a health care plan to any employee who: (1) is covered by a statutory exemption; (2) is covered by the concurrent employment exception; or (3) has waived health care coverage.
Approved plans: Approved plans include health care plans in which either (1) a prepaid health care contractor, such as Kaiser, directly furnishes health care, or (2) a health care contractor, such as HMSA, defrays or reimburses all or part of the expense of health care.
Minimum benefits: The law describes the specific types of minimum benefits required. Minimum benefits generally
include hospital, surgical, medical, diagnostic, and maternity benefits.
Minimum benefits are benefits that the DLIR finds are: (1) equal to or a reasonable substitute for the medical benefits provided by the most commonly subscribed to prepaid health plans; or (2) which provide for sound basic hospital, surgical, medical, and other health care benefits at a premium commensurate with the benefits received. In making the
minimum benefits determination, the DLIR considers the type and quality of benefits, limitations on reimbursability, deductibility, and amounts of co-insurance. A plan that provides these minimum benefits is called an "A" plan.
In the event that the Director determines the benefits provided by an employer's plan provide sound basic health care but are more limited than the most commonly subscribed to health plans (HMSA Preferred Provider Plan and Kaiser Plan B), then the employer must contribute at least half of the cost of dependent coverage. These plans are known as
"B" plans. The employer must provide an "A" plan or a "B" plan.
If the employer selects a health care contractor, the employer must use the selected contractor for all employees in the state, except those covered by collective bargaining agreements. The selection is binding for one year. As noted above, however, an employer may choose to make available to employees approved plans from different health care contractors, or different approved plans from the same health care contractor. The Health care contractors must give an
employer ten (10) days' written notice of cancellation or disqualification and may not refuse to insure or disqualify except for non-payment of premium.
Self-insured employers must submit satisfactory proof to the DLIR of solvency and financial ability to defray or reimburse, in whole or in part, the expenses of health care under an approved health care plan.
The employer must pay at least one-half the cost, but the employee's share of the payment cannot exceed 1.5% of his/her monthly wages or one half the cost of the premium, whichever is less. If the 1.5% is less than one-half the cost of the employee's premium, the employer must pay the remainder.
The employee may not be required to contribute more than the employee would have to contribute had the employer obtained coverage with the contractor providing the prevailing coverage of the type. The employee may agree to pay a greater share only to provide benefits for dependents.
An employer who has elected to require employee contributions may withhold the employees share from wages no less often than once a month and must promptly transmit the amount to the contractor. If the employee loses coverage because the employer fails to transmit payments deducted from the employee, the employer is liable for the employee's health care expenses, refund of the withheld amounts, and penalties.
Before withholding an employee's share of premium payments from the employee's pay, or deducting a pre-paid premium payment upon the employee's separation from employment, the employer must obtain a written authorization from the employee for the withholding or deduction.
If an employee is hospitalized or otherwise prevented by sickness from working, the employer must continue paying its share of the costs for: (1) three months following the month during which the employee became disabled; or (2) for the
period during which the employer pays the employee's regular wages, whichever is longer. For example, if an
employee becomes disabled in the month of January, and the employee has exhausted his/her paid leave, the employer must continue to pay its share of the employee's premium until the end of April. For disabled employees on leave, the
1.5% limitation on the employee's share is determined on the basis of the employee's continuing salary or wages in the last fully completed month of work.
Within two weeks after disability, the employer must notify the employee in writing of the amount the employee must pay to continue coverage. Thus, if the disabled employee is not earning regular wages, and the employee's share
of premiums is usually paid by payroll deduction, the employee must be informed of his/her responsibility to make premium payments directly to the employer for forwarding to the health care contractor. At least two weeks prior to the end of the employer's obligation to pay for continuation coverage, the employer must notify the employee in writing of the entire premium cost the employee must pay to continue coverage. Payments are made to the employer for forwarding to the health care contractor. Health care contractors must permit continuation of coverage without reduction of benefits or standards from the plan during the period.
State administrative rules govern the obligations of employers and health care contractors to cover employees already disabled at the time the employer changes contractors.
COBRA and HIPAA also require employers to allow employees to pay for further continued coverage under certain circumstances.
In the event of a disputed workers' compensation claim, the health care contractor must pay the costs of medical care and notify the DLIR of its payment. If workers' compensation liability is established, the workers' compensation carrier must reimburse the health care contractor for the amounts which should have been covered by workers'
Employers and health care contractors must comply with detailed reporting and notice requirements specified by administrative rule. Employers must post in a conspicuous place a written notice stating that it has obtained
health care coverage required by law, in a form prescribed by the DLIR. Compliant posters may be obtained from the DLIR.
On April 15 of each year, employers must file an annual report with the DLIR listing the amount of total wages paid to covered employees for the year, the annual amount of employer contributions for health insurance, the amount of
premium contributions by covered employees, and other required information.
An employer who fails to provide required coverage may be liable for the health care costs incurred by eligible employees during the period of the failure.
An employer who fails to comply with coverage requirements may be penalized not less than $25 for every day the failure continues. Haw. Rev. Stat. §393-33(a). If the failure extends for 30 days, the employer may be enjoined from carrying on its business in the state for as long as noncompliance continues.
An employer or employee who fails to comply with any other provision may be penalized $200 per violation.
When benefits are denied because of non-payment of premium, the prepaid health care contractor must promptly mail a notice of denial to the worker. Haw. Admin. Rules §12-12-44. The employee has twenty (20) days to request review by the DLIR. Either party may appeal the decision of the DLIR to a referee, and following that appeal, seek judicial remedies in court.
The Act establishes a special fund to be used to defray the cost of providing health care benefits for qualifying employers.
Roman is an attorney in Honolulu, Hawaii. His law practice focuses on employment and labor law litigation, and general civil litigation.