Are you providing your independent contractors with the proper disclosures?
The Seattle City Council moved to pass SMC 14.34, which outlines new Independent Contractor Protections (ICP). The new ordinance will go into effect on September 1st, 2022. It will require covered entities to disclose to independent contractors before signing a hiring contract and at the time of payment. The new ordinance specifically outlines the following:
- Pre-work written notice that identifies the proposed terms and conditions of work and payment before beginning a project;
- Timely payment that follows the terms laid out in the terms and conditions of the pre-work written notice or contract. If this is not addressed, payment must be provided within 30 days after the completion of services under the contract;
- A written notice that lists itemized payment information each time payment is made.
Who does this apply to?
The ordinance addresses self-employed independent contractors who have no employees, perform any part of their work in Seattle for a commercial hiring entity and will receive (or may expect to receive) at least $600 in total compensation within the period of one year (between January 1st and December 31st).
Do you think your independent contractor may be doing work in Seattle? Gathering information such as common management, degree of ownership or financial control, use of the brand, trade, business, or operating name can all determine where your independent contractor is operating. Be sure to clarify where your independent contractor is working before you hire.
Don’t worry if your business already has an independent contractor working for you as of September 1, 2022. Just make sure you provide the required notice of rights and pre-work written notice by September 30, 2022 or by the independent contractors next payday, whichever comes first. If you plan to hire an independent contractor after September 30, 2022, then you must be sure to provide notice and pre-work written notice before the independent contractor starts work.
What needs to be in your Independent Contractor Agreements?
When you find an independent contractor you want to hire be sure to provide them with a written disclosure that outlines itemized information on the terms and conditions of work. The written disclosure should include, but is not limited to:
- The current date;
- Name of the independent contractor;
- Name of the hiring entity;
- Contact information for the hiring entity, including the physical address of the business, mailing address, telephone number and email address;
- Description of the work the independent contractor is to perform;
- Location the work is to be performed;
- Regular place of business for the independent contractor or hiring entity;
- Rate or rates of pay, including any applicable price multiplier, pricing policy, or incentive to pay the offer of work;
- Pay schedule (monthly, weekly, daily, hourly, the fee per project, etc.);
- If tips are applicable or a service charge distribution policy;
- A schedule of how typical expenses will be paid or reimbursed by the hiring entity;
- Deductions, fees or any other charges that the hiring entity will subtract from the final payment;
Any changes to a contract or notice must be in writing before the change takes place. You can opt to provide this notice in separate documents. However, for changes of more than six items, you should issue a single revised document with all the disclosures listed. This information can be found in 14.34.050.A.
How should I provide written notice of rights to my new hires?
Firstly, this notice provides information on the independent contractors’ rights outlined in Chapter 14.34. This includes:
- The right to pre-contract disclosures;
- Timely payment and payment disclosures;
- The right to be protected for retaliation for exercising in good faith the rights protected by this chapter;
- The right to file a complaint with the Agency or bring a civil action for a violation of the requirements under this chapter;
For your independent contractors working for you as of September 1st, 2022, you should provide notice of rights before September 31st, 2022, or the date of compensation, whichever comes first. Suppose your independent contractor isn’t hired until after September 31st, 2022. In that case, you should plan to have the notice of rights to provide to the independent contractor at the time of hire or, at the latest, at the beginning of work. This notice should be provided in English, and any other language you know or have reason to know is the primary language of the independent contractor.
How should I pay?
This part is easy. Plan to pay your independent contractor on or before the date compensation is due under the terms and conditions of the contract. If the contractor does not specify when payment should be made, make sure you pay the independent contractor no later than 30 days after the completion of services under the contract.
However, be sure to do your negotiating before your independent contractor starts the job. Once the job is underway, you cannot require that the independent contractor accept less compensation than the amount due under the contract as a condition of timely compensation.
Once you pay your independent contractor, be sure to provide them with a written payment disclosure outlining itemized payment information. This should include:
- The current date;
- The name of the independent contractor;
- The name of the hiring entity;
- Description of services covered by the payment;
- Location of services covered by the payment;
- Raye or rates of pay, including any pricing policy or incentive pay applicable to the work;
- Tip compensation and/or service charge distributions;
- Pay basis (hourly, daily, weekly, monthly, fee per project, etc.);
- Expenses reimbursed;
- Gross payment;
- Deductions, fees or other charges;
- Net payment after deductions, fees or other charges.
What records should I keep?
It would be best if you planned to retain records documenting compliance with this chapter for each independent contractor. Records should be kept for a period of three years. If you fail to retain records, be prepared to be subject to a presumption that you violated the ordinance. You will most likely be required to pay a fine for each independent contractor you failed to retain records. This could be a steep price to pay, so plan to keep all records as a precaution.
What are the penalties if I don’t comply with the new ordinance?
If your independent contractor goes on to perform the agreed upon work and you fail to provide disclosure pursuant to section 14.34.050, then whatever the independent contractor alleges to be the terms and conditions of the contractual relationship are presumed to be true.
If you are found to be in violation of the ordinance, a civil penalty of up to $556.30 per aggrieved party will be fined. Once you are in violation a second time, the penalty can increase to $1,112.60 per aggrieved party or an amount equal to ten percent of the total amount of unpaid compensation, whichever is greater. The rates will continue to climb up to $5,565.10 per aggrieved party.
If you are found to be in violation of the ordinance, a civil penalty of up to $556.30 per aggrieved party will be fined. Once you are in violation a second time, the penalty can increase to $1,112.60 per aggrieved party or equal to ten percent of the total unpaid compensation, whichever is greater. The rates will continue to climb up to $5,565.10 per aggrieved party.
What remedies can an independent contractor recover?
This ordinance is outlined to protect independent contractors and ensure businesses do their due diligence when hiring and employing independent contractors. Therefore, independent contractors can recover unpaid compensation, liquidated damages of up to twice the amount of unpaid compensation, civil penalties, penalties payable to aggrieved parties, fines, and interest. The number of civil penalties, penalties payable to aggrieved parties, and fines will be increased annually to reflect inflation rates. These will be calculated to the nearest cent on January 1st of each year. Check with the City Clerk for updated rates.
Suppose violations are ongoing when a complaint is received, or an investigation is opened. In that case, the Director may order payment of unpaid compensation plus interest that accrues after receipt of the complaint or after the investigation opens but before the date of the Director’s order. This can get pricey! Interest will accrue from the date the unpaid compensation was first due, or you will be fined for the maximum rate permitted under RCW 19.52.020. If a remedy is due to an aggrieved party, the Director can waive part or all civil penalties and fines based on timely payment of the full remedy.
Where Can I find these Workplace Posters?
The Office of Labor Standards (OLS) provides multiple resources including Notice of Rights workplace poster, Model Pre-Work Written Notice, Model Written Notice – Itemized Payment Information, and Fact Sheet. The most updated resources can be found for download on this page or on the Resources page. Many resources, including the Notice of Rights workplace poster and model written notices, will also be available in multiple other languages on the Language Access pages.
Click Here to view the ordinance.
Is it time for a business health assessment?
Are your contracts, policies, and procedures current and working in tandem with your independent contractors? Plan a Business Health Consult with one of our business-minded attorneys to see where your business stands.
A Business Health Consult is a complimentary, one-on-one discussion with an experienced business lawyer to talk through areas of concern, strength, and risk. The meeting is extremely personalized, tailored to your business’s individual needs, challenges you may be facing, projects on the back burner, and any areas of your business that need more focused attention. Within a week, you’ll get a customized summary of recommendations based on your Business Health Assessment.
This post is not intended to provide legal advice. Contact an attorney familiar with your situation prior to taking or refraining from any action.