By | Michael G. Swansburg, Jr.
Earlier this month, Governor Andy Beshear signed HB 186 into law, making it easier for individuals and companies to contract with “direct sellers” by exempting the latter from certain statutory benefits afforded regular employees in Kentucky. The law officially takes effect later this summer.
To the extent you are unsure, direct selling is a generic term that covers a host of business concepts premised on face-to-face selling outside of traditional brick-and-mortar retail establishments. The most recognizable forms of this industry have been in the sale of jewelry, cosmetics, cookware, or even insurance. Think Tupperware or, more recently, Rodan + Fields.
For a company that uses, or wants to use, direct sales as a means of operation, what exactly does HB 186 do? In short, the new law does the following:
(1) It excludes direct sellers from the definition of “employee” under KRS 337.010(2)(a), meaning direct sellers are not eligible, under state law, to receive minimum wage or overtime, and individuals and companies, who or that could otherwise be deemed “employers,” are not liable under state law to keep records of payments made to direct sellers;
(2) It exempts direct sellers from coverage under KRS Chapter 342, meaning direct sellers are not eligible to receive, and individuals or companies who or that contract with them are not obligated to pay for, workers’ compensation coverage; and
(3) It excludes direct sellers from “covered employment” under KRS 341.055, meaning direct sellers are not eligible to receive unemployment compensation if they stop working.
In other words, the new law reduces costs and administrative hurdles for businesses that wish to employ direct sellers, making it easier for the industry to grow in the Commonwealth. And it potentially creates new opportunities for individuals who endeavor to start a new business, and earn an income, through direct sales.
But interested parties should proceed with caution; the new law immunizes companies that utilize direct sales only from certain state obligations. They may still be required to follow federal standards. For example, although the Internal Revenue Code, which sets the parameters for how income is defined and taxed, expressly excludes direct sellers from the definition of “employee,” the Fair Labor Standards Act (“FLSA”), which defines who must adhere to federal minimum wage and overtime standards, says nothing about direct sellers.
To address the FLSA, companies and direct sellers often rely upon the law’s “outside sales employee exemption,” but such reliance is fact-intensive and is only as good as a court’s agreeable interpretation. Until Congress amends the law—and bills like H.R. 3522 have been introduced to do just that—such uncertainty will continue to exist.
So if you are a company that wants to expand its footprint in Kentucky through direct sales, or you are a busy parent, a veteran, or just someone looking for more work-life balance, the General Assembly made it a little easier for you to do so. But proceed cautiously—the federal government could still find your arrangement in violation of federal minimum wage and overtime standards and cite accordingly.