Navigating the New Terrain of Labor Laws for Solo PR Pros

Karen Swim, APR (00:01):
Good afternoon. I am so delighted to welcome a special guest today, Nathan Gibson, who is the senior director of risk management for MBO Partners, and Nathan is an attorney and a bonafide expert. We have a lot of people that say that they're expert at something, but he truly is an expert in employment law and an independent contractor appliance. So I am compliant. So I'm so happy, Nathan, that you have agreed to join me today. Welcome, welcome.

Nathan Gibson, MBO Partners (00:35):
Thank you so much for having me, Karen. It's a pleasure to be here.

Karen Swim, APR (00:38):
It's such a pleasure to talk to you. So the reason that we're chatting today is because the recent Department of Labor role change, which the DOL rule change is how you may have been seeing this in the media and on social media, and there has been uproar amongst people that work for themselves because there's confusion about how this rule change might impact their business. So Nathan, walk us quickly through what the DOL rule change really is.

Nathan Gibson, MBO Partners (01:09):
I know you see things in the media and you think it's a zombie apocalypse with all the things that's going to end freelancing as we know it. It's a war on freelancers, and actually it's not that big a change. It's not even a rule. I mean, they call it a new rule. It was set forth in the federal register, and it is officially a regulation, but the regulation basically says is these are the factors that we're going to think about when we can consider what somebody's an independent, independent contractor or an employee. So it's not a hard and fast rule like if you work more than 40 hours and you get paid time and half, it's these are the things that we look at. These are the facts we look at and we balance when we're looking to make a determination if somebody should be an employee or an independent contractor.

(01:53):

So the first part is it's not really a rule. The second part is it's not a dramatic change from what was in place before this. In 2021, there was a promulgated, a rule on an independent contractor rule, and it tried to set forth what again, at that time, what the factors were. And they said two factors are really important, whether or not you have control and whether or not the worker has an opportunity for profit and loss. And if these two factors tell you if somebody's an employee or independent contractor, then that's what you work with. But if it's not clear, then you look at the permanence of their relationship, how much skill is involved and whether or not third integrated part of the business, the new rule takes the exact same rule, same factors, and says, we're just going to look 'em all. They're going to have equal weight.

(02:39):So still, if you are working independently and the employer doesn't have control and that you have an opportunity for profit and loss, that's not a permanent relationship and you have skills and it's not integral to the business, you're going to be an independent contractor under either rule. There are people who would argue that it makes it a little bit harder to become an independent contractor under the new rule. I actually kind of like the totality of the circumstances situation. I like to be looking at and emphasizing what people are strong at and in terms of independence, and I'll just give it a short story if you don't mind. About 20 years ago we were evaluating somebody who was actually a professor at MIT and he was consulting on the side. And when I say he wrote the book, I mean he wrote the book on this particular subject.

(03:29):And so his expertise and skill made it easy to make him an independent contractor, even though he might not have all the other indicia of having an independent business, the fact that he had such expertise we could point to and say, it's clear nobody's controlling him. He wrote the book on this stuff and you could hold up the book to show it. So under that kind of when you can say totality of the circumstances, you can pick the thing that you're strongest at in saying, yep, this really shows that independence. Whereas under the old rule, you kind of say, well, you have to show control and you have to show opportunity for profit and loss. I like the new rule. I think it's a little bit better for being able to show independence, but there are people who would say, yep, it's going to be more people are going to be found employees than independent contractors. But I am not sure that I agree with that

Karen Swim, APR (04:22):
When you talk about that because our audience, they are highly scaled, seasoned professionals. How does this really impact their business? What's the caution going forward for them and how do they handle this

Nathan Gibson, MBO Partners (04:40):
Under both? The previous rule in this rule, very early in the R, it says, the real test is whether the person is in business for themselves. And that's really what we're looking people will look to. Can you demonstrate that you're in business for yourself and there are certain things like that. Do you have a business name or do you go by your own name? Do you have a legal entity of some kind, an LLC or an S corporation? Do you do any marketing? Do you, you invest in the business somehow? Do you carry the liability insurance of some kind? All these things that employees don't have that businesses do? And if you can demonstrate that you have these factors and that you really are in business for yourself, you're going to be an independent under either one. And the fact that the highly skilled just adds to the case, making that going to be independent.


Karen Swim, APR (05:29):
Now, there are some professionals who make the leap to starting their own business. Sometimes they're still employed and they're starting this as a side gig to test the waters that this is something that they really want to do, or they're just doing it to work on different kinds of projects than they do in the regular job. So they may not have an entity set up. I know so many people that start and they just go to work because you basically need your skillset in your computer for those people. What are the concerns that they should have? If you're not an LLC, you're not an S corp and you don't have a business structure, is that a concern?

Nathan Gibson, MBO Partners (06:10):
From my perspective, it's something to think about, right? Because it's not hard to set up an LLC, it's not hard to get some kind of an entity set up. And so if someone's not willing to take those few steps, it's an easy thing to overcome. You know what I mean? It's an easy thing to check the box to say, Hey, I've got an LLC now. But it doesn't preclude you from being independent. There are a lot of people who are sole proprietors who use their social security number, who run everything through their business. It is a different liability situation. If you have an LLC, you have limitations on what liability, what you're responsible for, whereas a sole proprietor you're not. So there are other good reasons for setting up an entity, but again, you can demonstrate that you're not under the control of the employer, that you have independent skills, that you highly skilled, that you can demonstrate a profit and loss in a situation if you invest in the business and say, I can make this much money and this is what I spend on the business and therefore I take this at the end of the day as profit, that all will contribute to your ability to show independence.

Karen Swim, APR (07:20):
I think one of the things that can be confusing to people is that in the world of independence, we all know that the government favors employees. It's just easy. It's the way that we've always done things. If there's an employee-employer relationship, life is beautiful for them because they don't have to deal with all of these nuances and they don't understand the nuances. So the rise of rideshare apps has really brought this into, in my view, a bigger spotlight and it's confused the type of independent workers that many of us are because we're not like the rideshare drivers. We're not like the Instacart delivery people. It is definitely a different business model, and you are aware and accountable of the risks that you're assuming and you fully want to be. Here's the thing. In business by yourself, you're not looking for a union, you're not looking for benefits. You are a business and you fully own that. So what makes it a little bit confusing that there's always been this patchwork of laws that you have to comply with. So it's not just the DOL, but it's individual states. So AB five struck fear and panic into the hearts of independent contractors. So talk a little bit about what should we know and how do we find out our own states' regulations? So how do we really ensure that we truly are compliant where we operate?

Nathan Gibson, MBO Partners (08:50):
I'm happy to help anyone if they want to figure out their own state requirements, just shoot me an email or something. But generally you want to go to the attorney general's office or look up online what are the requirements for employee or independent contractor? Most states are pretty good about publishing that. Now I'm from Massachusetts, I grew up here. I live here now. We've had the A BC test in Massachusetts long before AB five, about 20 years before it. And as much as people want to say the sky was falling after AB five, Massachusetts still here and we're still functioning, we didn't go. It wasn't the zombie apocalyp apocalypse here after they changed the law like that. So I think that there's a little bit of panic at change and having to go meet new requirements. And I think it also caught some businesses that were taking advantage of workers by classifying them as independent contractors and then that just makes everybody anxious.

(09:55):But I mean, even in the last three years, department of Labor has gone after construction workers, healthcare workers, caregivers, and there've been a number of cases where they under the old rule have been able to either get settlements or get a judgment against these people for misclassifying workers. And again, those are typically situations where there are a large number of workers and they're all doing the same thing and the employers trying to save money and say, all right, I'm just going to classify everybody as an independent contractor, and then the DOL will come in and say, yep, this is just wrong. And I think we all recognize those situations. It does make everybody anxious when the DL is out there looking, but it really are. The situations they look at and then what they take action on are pretty flagrant most of the time.

Karen Swim, APR (10:50):
Yeah. It's funny that you say that because I think a lot of times we think like nail tech, that's another area where they really, it's a job. They go there every day, they have hours. They are not under their own control, but they've been, the shops will make them independent contractors, and that's a big no-no and construction workers is we are used to hearing about unquote day workers and in reality, they're on a job, it's their job and they report their every day and they're under the control. Talk to the independent contractors out there because many times we have very close knit relationships with our clients and we really do become an extension of their team. But talk about some of the things that you see that are red flags that we need to watch for so that we protect our clients from these misclassification lawsuits.

Nathan Gibson, MBO Partners (11:51):
It all comes back to, as we about earlier, being able to demonstrate you're an independent business and there aren't a lot of businesses who have just one client. The ability to be able to show you've got 2, 3, 4 clients really goes a long way to showing that you're an independent business. If you have one client and it's the only client and for a long period of time and you're doing 40 hours a week there and the strikes against you start to pile up and you can live with one or a couple, because again, we're going to look at the total circumstances, but as the more you get into the more you look like an employee, the more somebody's going to consider you to be an employee.

Karen Swim, APR (12:34):
You've said something very key because there are people that have large clients, a big client, and it's probably at their capacity to only be able to handle that. And then there's this trend of fractional CMOs and fractional executives. What about people like that? How can they structure their business in a way that ensures that they are compliant with these laws?

Nathan Gibson, MBO Partners (13:00):
So again, if you're going to be weak in one area, you want to strengthen your other areas. There are a number of factors, and if you are going to say, yep, one client long-term relationship, then I need to be able to show I've got an independent business because I have an entity, I have an opportunity for profit and loss. I invest in the business. I made these investments in the business that you have high skill. You want to demonstrate your skills. You want to make sure that that's easy to demonstrate. You want to look at the other factors that you can point to and say, yep, I'm an independent business because I meet all of these things.

Karen Swim, APR (13:41):
So it's good that it's not weighted, like if you strike out on one, it doesn't necessarily put you or your client at risk because clients pay high fines when they are found to be in violation and have misclassified employees. Talk a little bit about that because we don't hear about all of the cases. We only hear about the big lawsuits that happen. Right.

Nathan Gibson, MBO Partners (14:05):
Well, the good news is I think for this audience is that the DOL and employment lawyers generally look for the low hanging fruit, which is a large number of workers doing the exact same thing. And in those cases, then yeah, you do get big numbers quickly because you'll have 40 workers doing for three years not being paid overtime, or you'll have 300 delivery drivers. So you don't see a lot of the cases where it's one, two, the people doing something because they don't make the press and they don't ever go to court. In those cases, they typically get settled. So you want to be careful because you don't want to become the poster child. You want to make sure that we comply with the regs and we document an independence. But in terms of being worried about it from a government action, I don't see the IRS or I don't see the DOL going after individual people very often. I mean, it does happen, particularly if somebody, particularly if they suspect some kind of tax fraud. So the other thing to do is be meticulous in your taxes, pay your self-employment taxes, take appropriate deductions, but don't stretch. Do not do things that'll make the IRS want to look at you.

(15:28):We just don't want the IRS poking around your business. You've got better things to do with your time. So the extent to which you can be really careful and make sure you comply with the rules. You don't want to pay more taxes than you have to, but you also don't want to be too aggressive in some of the deductions.

Karen Swim, APR (15:45):
That is great advice. A lot of us also work with startup companies and something you just mentioned is something that they do when they're startups. They don't have a lot of employees. They may have one, and then everybody else is a contractor. So they really may have developers and marketers and their entire team is really a contractor. Is that a red flag that companies need to worry about and how can they make sure that they're protecting themselves?

Nathan Gibson, MBO Partners (16:16):
You need to have a couple of employees. I mean, you need a CEO, you need some number of employees and you can't let that go on too long. I guess I understand startups need to do that, but one year is different than five years is different than seven years. If you have all independent contractors after 2, 3, 4 years, you're rolling with the dice a little bit. You're putting everybody at risk a little bit there. The issue a lot of times there too is not that, I mean people tend to be okay, even independent contractors tend to be fine as long as they're working right. But if you ever have lay off somebody who says, wait a second, I put in 60 hours a week and I really should have gotten overtime, then you got a whole new headache. So you want to make sure that you do things right because when everybody's working and getting paid, there aren't any issues. If somebody gets load or gets laid off or leaves as disgruntled, that's when you can have a headache you don't need.

Karen Swim, APR (17:20):
Yeah, I was going to say, I think people are unaware that one of the triggers and disgruntled employees are definitely a trigger because someone could file for unemployment because they feel like they deserve it because they worked and now their job is gone and then that triggers looking into it, which could trigger investigations that lead to other instances and companies could lose everything based on the fines for this.

Nathan Gibson, MBO Partners (17:47):
Yep. There was a case a number of years ago when again, it was a California came in and audited a company. They came in for a completely different reason and then found a lot of misclassification, and then you write up, write a check to the state of California, which you could have avoided if you never hadn't been brought in on a different issue altogether. So yeah, everything you do, you want to stay away. You don't want to be on anybody's radar is the best advice. You don't want to take chances that will bring an audit from anybody because then it just open up all kinds of possibilities.

Karen Swim, APR (18:33):
I know there are some states that also make some provisions for independent contractors in terms of benefits like when you need to take parental leave, some states do make those provisions. Should independents be worried about accessing those benefits and putting themselves on the radar? Are these two separate things that will never trigger a problem for clients?

Nathan Gibson, MBO Partners (18:59):
I never want to say never. I always, but yeah, I'm not familiar with any cases that were triggered because someone was taking a legally required or legally available benefit. There's some of the government contracts where that require that employees be given vacation and benefits and they say that includes independent contractors because they don't want whoever's involved in the contract to skew things towards independent contractors to avoid providing these benefits. So you would have to provide either the benefits or compensation in lieu of the benefits for health benefits or for vacation time. Never heard of a case like that where somebody's been challenged on the classification. It's too good a defense speaking saying, Hey, this is what the law says and we're following the law. I'm not going to say that somebody doesn't do that at some point if there's some abuse that I can't think of right now. So I do hate to say never, but I do think that I'm not familiar with any cases like that. So I would be surprised by that.

Karen Swim, APR (20:07):
And you bring up another good point for independents to really consider is that this does not only govern how you work with clients, but how you work with your independent contractors. Because we know today the modern micro agency, we have networks of our own, and so we subcontract out with other independents and many times you work with those same group of people over a period of time, a long period of time. So we also need to ensure that we're compliant in terms of how we work with our colleagues.

Nathan Gibson, MBO Partners (20:45):
I think that's absolutely right. I think you want to look at the same thing. You want them to be able to demonstrate that they're an independent business. So the extent to which you can treat them the same way, the same way you want to be treated, you want to make sure that they have other clients. If you can do things on a project basis rather than an hourly basis, that's a good way to operate. You want to make sure that they invest in their business, they do marketing, they have the ability to have a profit or loss, all of the things that you want to be able to demonstrate for your business, you want the independence you work with to be able to demonstrate for their business.

Karen Swim, APR (21:24):
I think one of the key takeaways that I get from this conversation is reinforcing something that I believe and know is that headlines would make it seem like it's so easy to be in business for yourself, but when you're really in business for yourself, that means acting like a business person and taking care of all these details and having a business structure and making sure that your books are clean and that you have a separate bank account for your business and that you're doing all of the things that may not be fun, that it's not why you started the business. You start at the business because you have a skillset and you have a job that you love and you want to leverage that in the free marketplace, but it means doing the hard work and doing the hard thing so that you look just like any other business out there. Am I accurate in that?

Nathan Gibson, MBO Partners (22:16):
You spot on that because actually I was just talking to a colleague the other day and we're talking about controls within the business and there's never a control that is more efficient. All the right things to do are always more time consuming. It's easier to cut the corners, not have, don't dual sign off, not have a separate bank account, not have an entity than to do the right thing. And doing the right thing in this instance is what protects you and protects your clients by being able to demonstrate checking the boxes on an entity, other client's ability to sustain a profit and loss, all of those things, which the hard things to do. And again, you're absolutely right. It's not what you got into business for, it's not why you became an independent, but it's really what's going to be able to protect you and your clients and sustain your business in the long run.

Karen Swim, APR (23:07):
Yeah, I think they use the term freelancer and it seems so footloose and
(23:14):
Crazy, but freelancing doesn't mean that you're freewheeling it out here because that will get you into trouble. I would be remiss and full disclosure, MBO partners is a client of mine that I've learned so much from. So thank you for all of the knowledge. But one of the things that I love about MBO partners is that partner, you demonstrate that there is another way you work directly with companies to be able to compliantly onboard, independent. So talk a little bit that model because there may be people out there that's like, oh my gosh, I want to do business, but this whole S corp LLC thing, that's just way beyond me. Is there another way for me to be in business, still be compliant? And you do offer that third way?

Nathan Gibson, MBO Partners (24:04):
Absolutely. One of the reasons I love working for MBO is that we are set up to help companies work with independence. It makes easiest, we want to encourage independence. We like it when they come through us because that gives the company's comfort and it gives the independence comfort and the ability to focus on their business. If you come to us, we will encourage you and even help you form an entity because we think that really is something that's not terribly hard to do and it's something that helps a lot. But yeah, we work with clients all the time because the clients don't want to worry about having to demonstrate that each of their independents is actually an independent business. So we will work with the freelancers that come to us and we'll say, let's put together a package that demonstrates you are an independent, you have a separate business, here's some marketing materials, here's your investments in the business. We have a whole checklist of things so that if anybody ever gets challenged, we'll step in and say, Nope. We can verify. We can validate that they actually were an independent, and I love being part of that because it helps the independence across the country be able to continue to be independence and focus on what they do best.

Karen Swim, APR (25:17):
I also think that you're set up because it's so thorough in how you vet and make sure that people are compliant, it gives you a measure of comfort, but it also gets you accustomed to working with those big enterprise companies that really do have stricter processes for becoming a contractor for their company. I mean, bigger companies put you through all kinds of tests and they have different requirements. And so when you're accustomed to that, it doesn't come as a shock. I know that I've talked to a lot of independents that also work through MBO partners and they run either part or all of their business through your platform as well, and then they're able to divide up the work and you pay their contractor. So they also are running their businesses compliantly, which I think is a nice benefit.

Nathan Gibson, MBO Partners (26:08):
It's great to be able to work with independence and when they are flourishing and have people working for them, it's even better. And we want to encourage that and want to facilitate that as well.

Karen Swim, APR (26:18):
Okay, so as we wrap up, I just want to make sure that we once again recap what are the key things that independents need to do to make sure that they are compliant with the way that they're running their business?

Nathan Gibson, MBO Partners (26:35):
They want to be able to demonstrate that they are running their own business. And what that generally looks like is you have an entity, you have the opportunity for profit and loss. What you're doing requires some degree of skill. You don't work for one client for too long, that you have multiple clients and that loss that you invested in the business in different ways. So there are a lot of different things you can do to show that you are actually running your own business and you're not just an employee who's looking to avoid paying taxes.

Karen Swim, APR (27:12):
Wonderful. And we will have this in the show notes, but I encourage you to visit nbo partners.com. Nathan has written so many great blog posts on this topic. You can look him up by name and look for his posts, but there's also other information there that's applicable to independents running your business and to enterprises. There's a whole separate section with lots of resources and information and data on this marketplace. We will have in the show notes, all of the links, and please please connect with Nathan on LinkedIn. It's Nathan Gibson. Again, we'll have that linked in our show notes as well, and start a conversation with him. Share what you're experiencing out there. I'm sure he would love to hear that because he advises independence and companies and he can answer questions for you. And if you are either a business or an independent looking for a different option, then please connect with MBO partners and see what they have to offer. Nathan, thank you so much. I am especially grateful on this week when the time has me all discombobulated. I feel like I'm operating in partial fog because the time changed

Nathan Gibson, MBO Partners (28:21):
A hard week. I agree with you. Thank you, Karen. Thank you so much for having me. I really enjoyed being here with you

Karen Swim, APR (28:27):
Today. You're so welcome. Thank you so much. And to our audience, thank you for joining us. Please make sure to share this episode and engage with us on social media. And until next time, have a great week.