Episode 86: The DA of HR and Keeping You Out of Court

Welcome to the Unstoppable Profit Podcast.

Wherever you are today, if you're starting with nothing or are well on your way to the success you desire, with the right people, processes and promotions in place, you will be unstoppable. And now I'd like to introduce your host, Mike Stromso.

Greetings, everybody. This is Mike Stromso coming to you live from the Living Agency Laboratory. And I am pumped and excited for the next episode in the Unstoppable Profit Podcast. And recently we were doing a training for Unstoppable Nation in the realm of people, processes and promotion. And we decided to bring on somebody because it was so timely. And in all of our coaching sessions, et cetera, et cetera, this topic kept coming up. And I said, what a perfect opportunity. In collaboration with Tapatiel, we said, what a perfect opportunity to bring in the DA of hr, as we affectionately call her, among many other things that we don't necessarily say to her face. I hope she's not listening right now. Anyway, Unstoppable Nation just absolutely loved it. It was a great, great training. But a couple things came up in that training that needed a longer explanation. And so the DA of HR said, hey, I want to help, because that's who she is. She loves to help and she does a great job with it. So I am privileged, I am honored and thankful to have on the podcast the one, the only DA of hr, the Unstoppable, Deneen Ashworth. Deneen, welcome.

Thank you so much for having me on this episode. I am so incredibly thankful that I get to share. I find that this is kind of an issue that comes up over and over again, and I'll just start by talking about myself a little bit. I am married to a mic, but not the mic that's on this show with me. We both operate our businesses together under the same roof.

Are we talking about HR here? I don't know how many.

Absolutely. I said, not this mic. Another mic. There's a lot of you around.

I have two children. One is in her senior year of college and the other's in his junior year of high school. I sit on several boards, one of which being the Society of Human Resource Manager, my local chapter. I'm the president on the board. I also sit on the Chamber of Commerce, Board of Directors and Executive board, and I'm on the Legislative Council out here in Southern California and also on SHRM as well. So I am just so happy. I want to dive right in and get going.

Well, I know you are a bit sleep deprived and you don't sleep too much because I got communication from you, I believe, this morning, 4:55am Pacific. So no wonder we get along so well, right? Overrated.

Sleep's overrated.

Yeah. All right, so let's dive into the topic. Thank you for sharing, by the way, and thank you for being who you are, somebody who wants to continually give back. I admire that, among many, many other things. So the topic that came up in the recent training with Unstoppable nation was surrounding AB5, the Borrello is it a law?

Yes. So there's two separate. Yes, absolutely right.

So I'll let you dive into that and land your expertise there. But we also want to start touching on a little bit the IRS 20 factor test, just for the benefit of everybody nationally, because this audience is nationally or becoming internationally now. But just keep learning. The day we stop learning, the day we stop growing. So anyway, let's step back. Was there something before AB5, and if so, what was it? Just talk about that for a minute.

Yes, there was a court case that came before the Supreme Court in California. And it was, some people say dynamics, some people say Dynamex. I could talk on this for a long time. If you really want to geek out with me, you can give me a call. I'll give you my contact information after this. It was a court case that really determined, and the court said it was the first time the court had really made law and they were trying to kick it out. But what the court said is, well, no.

The old test, the Borrello test, or the 20 factor test, which is very similar in nature, is not relevant. And that's what we haven't been doing in California. We've been doing the ABC test. And I'll talk a little bit about abc. And it is across. It's not just a California thing. ABC independent or worker classification is across, I believe half of the states in the United States.

If I'm not mistaken, Dynamax wasn't that federal.

That was California. It was a delivery truck service only operated in California. They had their workers as employees, decided it was costing them too much money, switched them to independent contractors to save some money, made them drive company trucks, wear company uniforms, and they got their hands smacked. But instead of qualified under the Borrello test, there was no reason to make a new definition of worker. But they did it. And so here we are.

But I'm also hearing, as I get to communicate with people all over the nation, that this kind of thought process is spreading. So it's Important, especially if you have people within your own agency that are independent contractors. You need to be thinking about this kind of stuff because our goal is to avoid the lessons. You know, we talk about UPP wins and lessons. We want you winning a lot more and we don't want you to experience those, quote, lessons. Some of them can be costly. So thank you for sharing.

We have a new administration coming in and we'll have a new Department of Labor head. We'll have a new person who's in charge of. Well, we think we're going to have a new administration. We're going to have a new FLSA person kind of defining. And when California made this decision, they made it retroactive. And so you really want to make sure that you have people classified appropriately and trying to think ahead for what may happen, because you may be okay now. But if the courts went ahead and then made it retroactive, a lot of people got some penalties just from the retroactivity part of this law.

Yes. Speaking of retroactivity, wasn't like 30 plus years, or is that when that company started in business?

I think that the company started in business 30 years. They did retro. The retroactivity part is three to four years, depending on what it is. But, you know, if you have only independent contractors, you're not carrying workers compensation.

Right.

The penalty per year on that just alone is pretty hefty, let alone all of the tax implications and everything else.

Yeah, I know there was a company that people might be familiar with. Is it Uber?

Yeah.

You know, there was a day when they decided they were talking about just leaving the state. I mean, this kind of thought process and the leaderships out there in the states and everything, the way they think and really administer this, it's something that you need to be aware of. And we, you know.

You know, we were talking about this morning, I want to become the professor of awareness. I want to make people aware so that you don't get caught and learn more lessons. So fantastic. Let's continue to expand on that. So let's dive into AB5. Tell us more about what is that.

And so then, because it was the court making a new law, as some people saw it, Lorena Gonzalez from Chula Vista, the assembly woman, came about and made AB5. AB5 codified and created some exemptions in the law. So the ABC test that AB5 codified means that a person in California or in other states that have the ABC ruling can only be an independent contractor if they meet A and B and C A just for simplistic reasons stands for assumption of control. That means that the worker, if they're an independent contractor, is controlling their own work, their own schedule, their own time, their quality of work, everything else. They also have to qualify under B, which is beyond the usual course of business, which means that under this ruling, the work that's being done has to be completely different than what that work that the hiring entity is doing. I'll use my husband's payroll company as an example. If he brings in a plumber to come clean up a sink or, you know, fix a toilet or whatever. We don't do plumbing here. That's very clearly an independent contractor. However, if, let's say during W2 season, when things get a little hectic, he wanted to bring in somebody who also owns a payroll company to come in and work for a few hours to assist in that process. W2s are part of our normal course of business. That person, even though for two hours, would still would be an employee because it's not beyond the normal course of our business. That's the hard one to really get past on this ABC test. The C is consistently engaged in that worker has to be doing this. It can't be a hobby. If I wanted some shelves built behind me and I hired a carpenter to come in and do it, and they had a company and they were always doing that, that's fine. They're an independent contractor. I don't do carpentry, and I'm not telling them what time to come. I'm not controlling anything, any part of it. I'm just saying this is what I want done. Figure it out. If, however, I hire a friend who does it as a hobby but doesn't have a business, they're not consistently engaged in the act of carpentry. And so it might be that they're an employee of mine, and during the time that they're creating those shelves. So it's all three of those, you know, and that can be tricky.

Yeah. So for the people watching and. Or listening, let's recap the ABCs. Again. The A is the acronym for. Or the letter that stands for what acronym?

Assumption of Control.

Assumption of control.

And these are my own summaries of them. I used to teach elementary school, so I just in my mind had to make it stand for an A and B and a C. Yeah.

And related to the insurance industry, you've got a background in psychology and special education, which is in a direct line with us. Thank you. Thank you for that. Anyway, so assumption of control is A.

B is beyond the normal course of.

Business beyond the normal course or usual course. Okay.

And then C is consistently engaged in.

Got it. Fantastic. So again, this is just an awareness thing and part of what we teach in the unstoppable profit producer program, specifically for entrepreneurs or anybody for that fact, but really targeted towards that to begin with. You should only be doing the things that only you can do. And so be focused on what you do well, your top three personal talents, gifts, vital functions and, and empower somebody else to do the rest. Hence our empowered person in the HR realm is the DA of hr. Thank you for that. Who just takes care of it. So thank you for knowing all this and always taking care of it. A lot of this, like I said, is awareness thing. I want people to be aware of what potentially could be coming at them. And it's really, really important. So Anything else on AB5 that you'd like to discuss?

You know, I mean, I think that summarizes it in a nutshell. As soon as AB5 went into effect, of course there all kinds of lobbyists and groups that were trying to lobby, hey, we want an exemption, we want an exemption, we want an exemption. Then they came about with a new law that just came out, AB 2257, that went into effect right away. And I actually was, I was kind of excited because I got to have a little hand in that because I have a soccer club that I do some HR consulting for and youth coaches. The way it was looking at AB5, they really look like they're employees, not independent contractors for the soccer club. So I threw out, well, why don't we add youth coaches? And they did add it as an exemption. It's just, they added it in the wrong spot. So it doesn't really apply, unfortunately. But I tried, you know, I do try to get my, get some business friendly stuff in there federally as well. So 2257 does make an exemption. And I really looked at this from, you know, an insurance perspective and it does, you know, for your licensed agents, there is an exemption there. And so people are like, okay, great, we can just have them be independent contractors. Most, a lot of them want to be independent contractors.

It's great. The problem is, is that once you have an exemption, then you're going to fall back on the old rule, which was the Borrello test, which is very similar to the IRS 20 point test, which we'll all hit on as well, pretty briefly. But the Borrello test is something else. And then when I look at this, I mean, everyone has to make Their own decision. And I'm just doing this for awareness, but when I look at some of these things, I'm not so sure if I was an. If I had agents under me, I'm not so sure I would classify them as independent contractors.

Back to the A, which is assumption of control.

Right.

Are they required to show up at a certain time? Well, to do whatever they want to do.

Right, right.

They have to make so many calls a day. Are they required to meet any production requirements, et cetera, et cetera, et cetera. I mean, our friends back in the east that sit in these seats, it might take them a couple years to catch up with us, but they will catch up.

And the ABC test is applicable in a lot of other states as well. So when ABC doesn't qualify, we go to Borrello, and Borrello says things like that the work has to be very distinct from that of the employer. So your producers. I would hold, and many courts would hold as well, that if someone is selling insurance for you, that is part of what you do. So it's not very distinct. Right.

Is their work an integral part of your company? That's what you have to weigh out.

Exactly.

Sales is. I mean, I have sales as well. In my agency.

Workers do. Does the worker supply the instruments, tools placed for the worker doing the work? They might if they're working at home. But as we've seen, especially, you know, during this pandemic, a lot of people have gone and worked from home. But that doesn't mean that they're in control of their own time. The employer is in control of that time and what is being output. If they're working at home and you have a quota for them, are they really in control?

Right.

You know, does the worker invest in their own business or how is that looking? That's another, you know, aspect of it. Is the service provided a special skill. You have to look at that. You have to look at it. Who's directing it? Is some. Are you supervising and directing what they're doing? Are you telling them how to submit a policy? Are you telling them how to do it? Maybe. Then it looks like you're controlling that a little bit.

You know, length of time over which that this is done. You know, when I had my kitchen redone, that was truly independent contractor. But that was short. Well, it seemed like it was a long time, but it was four months. I mean, we did a pretty, pretty good gut job in the house, but it was a four month long process. But it wasn't years and years and years and years and years. You know, there was a determinate amount of time that the work was being done, you know, so it was very specified. You know, there was no permanence. The method of payment was I paying them via direct deposit twice a month, once a week, every other week. That looks more like an employment relationship.

Can the worker hire their own employees?

That's another part that, you know, you might want to be aware of. Are they able to hire their own? Maybe then they could be considered, you know, but we need to look at all of these.

You know, can you terminate at will? Are you. I mean, that's kind of a joke sometimes, but, you know, are you. Do you have the right to terminate them?

And do they think that they're an employee?

You terminate legally, right?

Yes, terminate legally. Always trying to keep it light.

No. But did they think they're an employee? This is where we see it. We don't. I haven't seen a lot of cases where someone was an independent contractor because they were very happy with that relationship. They don't usually come after the employer that I've seen that I've had personal relations, you know, personal knowledge of. But what I'll see is.

Oh, there's not enough work. I'm going to apply for unemployment because they assume they're an employee and they're. Then they apply for unemployment and they list the person, the insurance agency, and then there's an audit. And then all of a sudden all of this gets opened up and it's not pretty. You know, I just presented to. It wasn't an insurance agency, it was another company. They do architecture, but same kind of thing. They had everybody as independent contractors. Someone applied for unemployment and it opened up an audit because then it comes back and they're not listed as an employee. They're listed as a 1099 worker.

Right. So let's talk about. I will never say it again. The letter formally was C. Now it's a. Agreements.

Yeah.

I learned from you and many others that never use that word anymore. It's an agreement, not a contract. Just for clarity purposes. So the agreements, should there be an agreement with. Well, let's talk about employees and independent contractors.

Right. So with an employee, you should have an employment agreement or a sales commission agreement. And in California it's required. I would recommend it really across. You really want your employees or your staff to understand what's expected and what they can expect of you. I prefer when I'm doing any kind of disciplinary or any kind of anything to really relate back to a policy or a document rather than, oh, I feel like you weren't nice or I feel like you didn't hit your numbers. No, spell it out on the paper. Spell out when they're going to get that commission. So then they know. And then they're not always knocking on the door saying, well, when was that commission coming? We'll look at your agreement. You know, then there's no question. And if something happened and it went south, went sour and you had to go before somebody. No, we have an agreement right here. We both agreed to this. If you decide to have independent contractors, you should have a contract with your independent contractors. I don't draw either one of them up unless they're looked at by legal because it is a legal document. If you put an A instead of a the, they'll throw it out, of course, court. So I'm happy to put the time into. So you have to pay, you know, people have pay less legal fees. I'll do it, but I'm going to require that you get it looked over by an attorney afterwards at the end of the day, just to make sure.

Yeah, to pull back. And what we're also referring to here is not only your own employees, if you get to lead and own a business, but we're talking about potentially for your clients here as well. Say that you do a lot of commercial insurance or just a little commercial insurance. You want to be aware of all these things as well so you can better help people.

Right. And we see it in construction a lot. You know, they'll, they'll have their subs come in or their people come in and they're coming in as independent contractors. They get injured on the job. Not that you can't in an office, but we all know the rates are higher for those working in the construction industry because the likelihood of injury is a little bit higher. You know, they might get injured on the job and they're going to claim it as a work related injury. Well, that's going to trigger a nice audit. Not a nice, I'm being facetious, but it's going to trigger an audit for you. And that's when they're going to come back. And it's not only that employee they're going to audit. They're going to want you to open your books for everybody.

Right.

I did an audit, an EDD audit with a client maybe five years ago. And we, it was a restaurant and literally the edd, the worker came in and said, okay. She said, you know, she said, I have to take A break in such and such time because I'm on the clock and I'm required to do that. She said, do you have any independent contractors? The client said, I only have my bookkeeper as an independent contractor who's sitting right here. She asked the bookkeeper, do you have other clients? The bookkeeper said, yes. And she said, oh, and this is before AB5. She said, that's good because we're going to get this audit wrapped up real quick. If you have no independent contractors, from the auditor's mouth.

So be aware, know exactly what you're dealing with, know what your clients are dealing with for that fact.

Yeah.

So I heard you touching on some of the features of the IRS 20 factor test. Anything else to add on that?

Really? The 20 factor test and the IRS.

20 factor test is federal.

Yes, that is federal. It is. And they're really looking at things about control. Again, it's really about are you controlling their work? Are you controlling how they do it when they get paid? Those kinds of things. In addition, the fair labor standards are. They also have their own rules and those. That's federal as well. And that has to do with things like is there an ongoing relationship? Are you looking at what their performance is? You know, are you doing performance? Do you have quotas for them? What are you doing to monitor performance? How are you paying them? Do they have benefits? You know, all of those kinds of things they're really going to look at, you know, and you just want to be really careful because when you misclassify, regardless of what state you're in, you're going to be paying unpaid wages. So if the worker says, I wasn't paid overtime because an independent contractor is most likely not keeping, they shouldn't be keeping track of hours. My kitchen people did not come in and clock in and out for me. And they might say they worked overtime and they didn't, weren't paid for it. They might have missed their, you know, had some meal and respond problems in certain states. There or there, you'd have to pay for unpaid payroll taxes and any penalties from the IRS and the state agencies. There could be workers compensation liability. I know that goes up there. I had a barber shop and work comp penalties were $45,000 of penalties for four years for retroactivity on the AB5 decision.

And our friends in leadership, aka government, they truly have access to our bank accounts, do they not?

Yes, they do. Absolutely. They have access. I mean, even my phone tracks me. So I can't even imagine what the government is doing.

At the end of the day. I've never experienced it, thankfully, but I've heard the word freeze come into play.

So that can happen. And there's civil penalties, you know, five to $15,000 per offense, per violation. And then in California you get to display a nice pretty notice that's not so pretty saying, you know, I mean, this is my own salty take on it. We are guilty of employee misclassification. This was our penalty. So that anyone from the public coming in, and I would think from an insurance perspective, if you have commercial clients, you don't necessarily want them seeing that you were, you misclassified your people because you're helping them with theirs.

That's a credibility issue, right?

For sure.

Wow.

Yeah. So, I mean, the overriding 10,000 foot level awareness encouragement that I know Da and myself are trying to share here today, you know, be aware of what's going on in your business. And if you're taking care of business people, help them be aware of what's going on in their business too. We cannot give them enough information. So bring it to them in a way that they can understand it, whether it be on the phone. I will suggest that an email is not going to cut it. I mean, I don't have any emails. You get a day. Is it over three, the figure over three, the number three digits? Yes.

And I always say tonight I'm going to sit on the couch and turn on the TV and have a glass of wine and I'm really going to get through my email. You know, I always hit the high ones, but I never, you know, it's the other ones that really just need to go in the trash, honestly. But yeah, I always recommend have a conversation and follow it up with an email with what you talked about because there's also, at least in California, a stipulation that if you give guidance to someone that they are okay having an independent contractor, you can be liable for damages as well. So if you are an insurance producer, if you're an agent and you say, yeah, that sounds like an independent contractor, and then it comes back and they get sued, you can be on the hook for that. So I would, I rarely will say, oh yeah, it looks like an independent contractor. I will always get legal behind. And it's always good to have an employment law attorney.

For backup.

That means I second. I agree. For anybody who's watching this that doesn't know I second or I agree. Long story from the kitchen, the dinner table when the kids were growing up. But.

It'S a fun story. Yeah, it Is. And anyway, I'll leave it at that. There's a lot of fun things that have happened because of that. So. But back to business and being a little more serious about business here, one of the greatest thought processes I've ever heard. And by the way, what I was also going to add, I get to be in the trenches every single day. Just like all the. If you're an agent out there and you're hearing this, I'm in the trenches with you. I'm currently evaluating my own professional liability insurance, AKA E O. Make sure you are aware of what you've got, what you don't have in that realm. Because of what Deneen just said, if you're not properly advising people or you misadvise somebody, it's right back to that. I'm looking line by line at mine right now for a lot of different reasons. So just be aware. I mean, because you want to be protected. I mean, we're in the protection business, right?

So with that being said, I learned last century, we'll say in the early years of my journey in this awesome industry that I mean, remember the old balance scales? Da.

Mm.

You know, they have the pans and you put a little more weight on one side and it goes down. Putting a little weight on this side, it goes like that. The person. And that person was a. An auditor who taught that class, had expertise in tax law and insurance law, was a great class. And I've never forgotten it said you got to think of everything as a balance scale. If you're thinking about W2 employee or independent contractor as an example, and the words are the right to direct and control. If your right to direct and control, that person weighs on this side and it's not in balance, it might be an employee. Would you agree with that thought process?

Oh, absolutely, absolutely. And I mean, in many areas I've helped people, barber shops, hairdressers. You know, a lot of people in California have had to switch what they're doing. And there's ways. Dance instructors, there's ways to do it. I know it costs more to have employees, but there's ways to leverage. There's way. In some ways, some of the businesses in doing this have become more profitable because now they have a little more control over their workers work and output. And there's ways to do it.

Yeah, there is ways to do it. And so.

I have experienced so many things in my journey so far. Ways to do it, ways not to do it. Wins and lessons, as we say, one of the wins without question has been when we started working together. And we were able to empower you to take care of that particular asset because we know it's being done right. There's lots of ways to, you know, get your HR picture in alignment, in order. But, you know, ultimately, at the end of the day, think about it like this. And we talk about this quite a bit. You know, we work so hard and as entrepreneurs and you're an entrepreneur.

I am.

Is it not seven days a week?

Yes, seven days a week.

We are thinking about it. It's on our shoulders. You know, we're thinking about it. I mean, even when we're sitting there on the couch enjoying our beverage.

And more thinking about it. I mean, it encompasses us. So we got to make sure we take care of it.

Right.

And if we don't respect the rules and take care of things, then we may get a surprise that we don't want anybody to have a surprise. AKA lesson you were talking, you know, 10, $15,000, $45,000. We don't want anybody's bank account frozen, et cetera, et cetera. So just be aware and most importantly, partner with somebody who knows a lot more about it than you do. And da. I'm just going to ask you to give your information just a minute. And with extremely deep gratitude, I will again say thank you for all you do for everybody, and thank you for wowing Unstoppable Nation a couple weeks ago in that training. We got so many comments after the training. That was incredible. It was timely. It was awesome. So thank you for that deep gratitude here. Thank you.

Thank you.

If anybody has any further questions, you have agreed to drop your contact information, which. Thank you for doing that. And if anybody. And you. If you can't directly help, you can certainly point the right direction, because I know you're not up only at the state level, but you're playing at the federal level. And I know you go back there and. And try to get them in order. And you've told me before that they're not listening to you.

Yesterday I was. I was on zooms all day yesterday with them, and I got. I made some traction. Yeah.

Again, give them everybody your first and last name, the name of your company and what contact information you want.

Okay. Absolutely. My name is Deneen Ashworth, and I'll spell that. My mom didn't do me any favors. It's D, A N, E, E, N. The last name is Ashworth, just like it sounds. My company's name is Compass, hr So if you want to be in contact with me, you could actually go to my website. It is mycompashr.com My email is deneenycumpasshr.com telephone number 951-216-5474. And I do offer a complimentary HR checkup or HR consultation. You'll get my notes if you go with me, great. If I need to point you to someone else, great. But you know, my heart and my passion is to help business owners.

Second, I totally agree. So we just got to do what we call affectionately a case study video this morning about a business owner who we helped in a very big way. And I was sitting there watching the video and while he was speaking, I wasn't in it.

Unbelievable. I mean, people depend on us out there in a big way than sometimes we realize. So we need to make sure we meet them where they are, right?

Yeah, absolutely.

Va, it's been an honor and a privilege and a pleasure. Again, thank you so much for being on the bot on the podcast. I look forward to hearing the rave reviews, which I know we're going to come after this one as well. Thank you so much. And for everybody else out there, if you haven't subscribed yet, go to Unstoppable Profit Podcast. That's Unstoppable Profit podcast dot com. Make sure you subscribe. We're also out there on all the channels. Wherever you want to find us, you will find us. The unstoppableprofitpodcast.com and if you get value out of our podcast, please share our podcast with anybody and everybody you know. We want to bring you timely, relevant, important information to help you be out there making a difference, being unstoppable. So you too will leave no regrets. Thank you, Deneen. Again, have a great weekend.

Thank you.

All right. All right, everybody. Thanks so much. I will see you on the next episode. Take care. Until then, be unstoppable. See ya.

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