Time to speak up.

Promotional products professionals have until Tuesday, Dec. 13, to submit formal comments to the federal government over a proposed rule change that critics say will negatively affect the livelihoods of independent contractors in the promotional products market and other industries, as well as impact the costs and operations of businesses that rely on such workers.

While many independent contractors and others in promo have been vocal critics of the proposed rule, some independent contractors in the industry have quietly said there should be better protections in place to help them get the compensation and benefits they feel they deserve.

Regardless of which side of the issue one falls on, anyone can submit comments to the Wage and Hour Division of the U.S. Department of Labor, which is considering the rule change, through the Federal Register. Industry leaders are encouraging promo pros to make their voices heard.

“Send something in, even if it’s short,” says Chuck Machion, senior vice president/senior counsel at ASI, parent company of ASI Media. “Sometimes volume works in influencing how authorities will view an issue.”

‘Deprive Thousands of Earning an Income’

On Oct. 13, the Labor Department published a proposed rule to revise its guidance on how to determine who is an employee or independent contractor under the Fair Labor Standards Act (FLSA). The practical effect of the rule would be that many people currently classified as independent contractors would likely have to be considered employees under FLSA, analysts say.

Critics of the proposed rule say it would upend sales models that suppliers, distributors and multi-line reps in the promo products industry rely on to keep business moving and make their livelihoods. The thinking goes that the regulations would cripple the ability for distributors to partner with independent contractor sales representatives and for suppliers to work with independent multi-line reps. Such relationships are foundational to many businesses in promo.

“If this regulation was enforced, most businesses in the promotional products industry could not hire independent contractors as employees, and instead would be forced into untenable relationships that would cause significant job losses for my industry,” reads a letter that trade group Promotional Products Association International (PPAI) prepared for promo pros to submit during the formal comment period. “This regulation would deprive thousands of independent contractors in the promotional products industry from earning an income.”

Machion explains that promo’s independent contractor salespeople would likely have to be reclassified as employees under FLSA if the rule goes on the books. But as the PPAI letter alludes to, many suppliers and distributors could opt against hiring. Why? Cost.

“Because of this rule, you could have companies in our industry and others saying, ‘Sorry, I have to let you go because I can’t afford to take you on as an employee,’” says Machion. “The company loses the salesperson, and the salesperson loses their income.”

What’s more, many independent contractors simply don’t want to be employees. They value the freedom, flexibility and earning potential that comes with being independent and don’t want to be forced to give that up.

‘Not a Fair Work Structure’

Employees, compared to contractors, are generally entitled to greater benefits under the law, such as minimum wage, overtime pay, protection from discrimination, mileage reimbursement and more. Those are big reasons proponents are pushing for the rule change, as they feel many employers wrongly classify workers as contractors when they should be employees.

“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” U.S. Secretary of Labor Marty Walsh has said. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”

Some independent contractors in promo think the issue indeed needs addressing in the branded merchandise market.

“The independent contractors in (the promo) industry are being left without benefits and (existing on) 100% commission structures,” an independent contractor sales pro who wished to remain anonymous for fear of reprisal told ASI Media. “It’s not a legitimate or fair work structure. The franchise owners are getting tons of free work out of this deal. In the meantime, contractor sales reps have to work 10 times as hard to make sure they can pay for health insurance, dental and more.”

Independent sales professionals with similar views feel that if a business is managed the right way with the correct structure, then it would be possible to hire on independent contractors that desire employee status, providing at least some salary and benefits, without causing detriment to the industry.

‘Significant Risk to Employers’

For sure, it’s important that promo companies correctly classify workers as employees or independent contractors.

Misclassifying a worker as an independent contractor when they should be an employee under the FLSA comes with what labor/employment attorney Mianda K. Bashala describes as “significant risks for employers.”

“If a change to a worker’s classification brings the worker under FLSA’s protection, an employer could face liability for unpaid wages and overtime, and liquidated damages equal to the amount owed in unpaid wages,” writes Bashala, a lawyer with the firm Keating, Meuthing and Klekamp. “Treble damages, which is an amount equal to two times the unpaid wages are possible too. In addition, attorney’s fees and costs may be awarded.”

Furthermore, she notes, misclassification carries other risks, including tax and benefits liabilities, and tort liability to third parties for injuries caused by contractors, if those workers were incorrectly classified.

“The proposed rule will likely tip the scale in favor of classifying more workers as employees, as compared to the current rule,” Bashala states. “Employers who use independent contractors should carefully analyze the relationship with these workers in light of the six factors in the proposed rule.”