April 17th, 2012
- Spell it out. Use your Statement of Work (SOW) to describe the specific skills/technical expertise of the contractor and the specific tasks to be performed. Have a written agreement that specifies the worker is an independent contractor, is responsible for payment of taxes, social security, etc., and is not entitled to participate in any company benefit plan (including health insurance benefits, 401(k) plans, profit sharing, vacation, etc.).
- Require documentation of business formalities. Is the contractor incorporated? Do they have a business license or DBA? Do they have insurance? Do they have evidence of other clients? Marketing material? Ask for, and keep copies of, this documentation to show that the contractor has an established business.
- Establish termination provisions. Employment is typically considered to be at-will, meaning that either party can terminate the relationship at any time. However, independent contractors are typically engaged to complete a specified scope of work…
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Posted in Best Practices, Contingent Workforce Strategies, Independent Contractors, Resources | No Comments »
April 9th, 2012
Recently, California passed legislation imposing new penalties of $5,000 to $25,000 per violation for the willful misclassification of workers as independent contractors. Read more here Now, AB 2373, introduced by Assembly Member Chris Norby, proposes to add a new section to the Labor Code that defines “independent contractor” by using a list of 17 different factors. For the most part, these factors are similar to the long-standing IRS 20-factor test. However, this new test blends some of the IRS factors together and adds several “new” factors. The new test also deletes several of the IRS factors, for example: whether the services must be rendered personally, or whether the worker may hire assistants; whether the worker has the opportunity to make a profit or loss; and whether the worker can perform services for more than one firm at a time.
The newly-added factors are:
- Whether this kind of service is usually rendered under the direction of the principal without supervision
- Whether the parties believe they are establishing an employer-employee relationship
- The length of time for rendering the service
- The extent to which the service pertains to the regular business of the principal
- The skill required to render the service
There does not appear to be any commentary or analysis that would help clarify the intent behind this legislation. It is certainly not clear to me how combining factors, deleting factors, and adding new factors serves to do anything other than make an already murky area of the law even murkier. But that’s just me . . .
In other news, legislation has been introduced in New York which would give the Labor Commissioner the authority to pursue compensation claims by independent contractors in the same manner as claims for unpaid wages. The law also requires that any contract for more than $600 be in writing, with the written contract maintained on file and available for inspection by the Labor Commissioner for at least six years, and a six-year statute of limitations for filing complaints and collecting money owed to independent contractors.
Stay tuned . . . in this area of the law there is sure to be more to come.
Posted in Employee Classification, Government, Independent Contractors, Industry News, Law, Risk Mitigation | No Comments »
March 7th, 2012
On February 9, 2012, California Secretary of Labor Marty Morgenstern announced that California has become the 12th state to enter into a memorandum of understanding with the U.S. Department of Labor (DOL) regarding misclassification of employees as independent contractors.
While it is not yet clear what financial incentives the state will receive for participating in the program, one key element involves information-sharing between the state and federal government regarding misclassification investigations. This essentially ensures that, if your company is audited by one state or federal agency (EDD, IRS, DOL), the others will soon be knocking on your door as well. And you can add to that the potential impact of the new California law imposing penalties of up to $5,000 to $25,000 per violation for misclassified workers.
For 2011, the DOL claims to have collected $5M in back wages for wage and hour violations including unpaid overtime that were a result of employers misclassifying their employees as independent contractors or otherwise not treating them as employees. With the new state partnerships, this number is anticipated to increase for 2012.
In its recently approved 2013 budget, the DOL has allocated an additional $14M for its Misclassification Initiative. This includes $10M for grants to states to identify misclassification and recover unpaid taxes. The remainder goes for increased enforcement, including 35 full-time employees dedicated to investigating misclassified workers.
In a related note, as of March 2012, the IRS reports that 217 companies have taken advantage of the Voluntary Classification Settlement Program (“VCSP”), on track with expectations. The VCSP provides significant relief from federal employment tax liability for companies that agree to reclassify independent contractors as employees on a go-forward basis. The IRS has also stated that the identities of companies participating in the program will not be shared with the DOL. For more information on the VCSP program, click here.
Facing higher risks than ever before for misclassifying workers as independent contractors, companies that don’t have a 1099 compliance program in place are scrambling to get one.
Secure Talent can help. Call us today to learn more: (800) 778-0197.
Posted in 1099 Vs. Employee, Audit, Employee Classification, Government, Industry News, Law, Misclassification, Risk Mitigation | No Comments »
