With labor misclassification lawsuits mounting for operators and oilfield services companies alike, it’s important that management teams identify a better solution for managing labor related risk.
The purpose of this post is to provide you with greater insight around labor misclassification for Oil & Gas related companies while also introducing RigUp’s solution to help you reduce misclassification risk.
The Profile of an Oilfield Independent Contractor
Many of the reasons for using independent contractors are well-understood by most Oil & Gas Companies. They include the following:
- The cyclical nature of a commodity based industry requires O&G companies to quickly and easily expand or contract their workforces to accommodate workload fluctuations.
- Oilfield independent contractors have specialized technical expertise and certifications acquired through formal training and on-location experience which makes them highly sought after.
- Specialized oilfield independent contractors insist on and indicate a strong preference that they be retained on a competitive, independent contractor basis.
- Service pricing has traditionally billed according to time “on-location” making Independent contractors billable based on day rates while on location.
Current Economic Landscape
The considerable economic challenges of the last 24 months in the oil patch has caused great strife among industry professionals. Reduction in billable work and decreases in market rates have created income shortages compared to earnings during the good ol’ days of 2010 thru 2014 when weekly, domestic land rig counts consistently exceeded 1,800 and nearly eclipsed the elusive 2,000 mark on several occasions.
With rig counts hovering around 30% of the peak through the latest downturn, an environment has been created that encourages opportunistic legal activity related to labor misclassification, as out-of-work independent contractors seek income to cover daily expenses and back taxes owed to the IRS.
Classifying Independent Contractors
The US Department of Labor (“DOL”), the IRS, and each state have their own unique factors in determining whether an individual is an employee or an independent contractor. As an example, the DOL has a 6 point guide: webapps.dol.gov/elaws/whd/flsa/docs/contractors.asp
(1) Does the worker play an integral role in the business by performing the primary type of work that the employer performs for his customers or clients? Does the worker perform a discrete job that is one part of the business’ overall process of production? Does the worker supervise any of the company’s employees?
(2) How long has the worker worked for the same company?
(3) Is the worker reimbursed for any purchases of materials, supplies, etc.? Does the worker use his or her own tools or equipment?
(4) Who decides on what hours to be worked? Who is responsible for quality control? Does the worker work for any other company(s)? Who sets the pay rate?
(5) Did the worker make any investments such as insurance or bonding? Can the worker earn a profit by performing the job more efficiently or exercising managerial skill or suffer a loss of capital investment?
(6) Does the worker perform routine tasks requiring little training? Does the worker advertise independently via yellow pages, business cards, etc? Does the worker have a separate business site?
Here’s a more simplified summary: Independent Contractors must be treated as the competitive, professional business owners with the opportunity to win work in a competitive marketplace with the ability to invest in their own operation and growth.
Innocent decisions made consistently over the course of peak business have created havoc for operators and oilfield services companies alike. Examples include:
- Providing non-cash incentives such as shared office space and company owned trucks to retain independent contractors.
- Providing employee eligible benefits to independent contractors.
- Stipulating and controlling independent contractor work hours.
- Non-negotiable day rates.
- Failing to provide defined project scopes.
- Lacking documentation as to the professional, nature of the two entities.
What solutions does RigUp provide?
RigUp has brought to the Oil & Gas vertical the only free online marketplace with the same efficiency and transparency being realized in other verticals.
Let’s talk about how we can help you today. Contact us at firstname.lastname@example.org or 512-501-5452.