July 21st, 2010
Lat Thursday, the Attorney General for Massachusetts announced that FedEx had agreed to pay $3 million dollars for misclassifying drivers as independent contractors. Worker misclassification has been problematic for the delivery company whose business model appears to classify a majority of their drivers, and what most people consider employees, independent contractors.
Fedex’s latest news maker is somewhat surprising since they’ve backed their business model all along. Now all of a sudden they decide to shell out $3 million! Who is this delivery company and what have you done to the old FedEx? Now, before we take notice of FedEx’s “noble” actions, I can’t help but think that maybe this was a ploy to soften up Massachusetts and the 13 drivers who have filed suit against them. If this was FedEx’s plan all along, they greatly undervalued their payout. The 13 drivers involved in the suit have indicated that they no intention of easing up but instead will continue with their lawsuit.
Though have not heard the last of this Massachusetts – FedEx tangle. I can’t but help wonder if the $3million payment will hurt FedEx’s case as the lawsuit continues. As usual, a FedEx spokesperson continued to deny the company’s liability and stated that FedEx was merely trying to settle the dispute. Was it a guilty conscience? Hardly. The payout is a drop in the hat for a company that has a cost advantage of up to 30% on it’s major competitor, UPS. Whatever the reasoning for the payout, the bigger question is will this have any bearing on the class action suit taking place in Indiana. Stay tuned.
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June 28th, 2010
Whenever I used to hear the words,second time around, that late 70’s/early80’s r&b song would always come to mind. Those days at the skate ranch will always be memorable. But enough about my r&b infused memories. The second time around that I’m currently referring to involves independent contractor legislation.
In the last few months there has been legislation that has been reintroduced in both the house and senate that were initially introduced in Congress’s last session. HR 5107 and S. 3254 both of which share the same name, the Employee Misclassification Prevention Act , have made their way back onto the floor in hopes of gaining approval from the committees and being sent to the floor for a vote. These two pieces of legislation are not the only items receiving a second chance as the Taxpayer Responsibility, Accountability and Consistency Act of 2009 (S. 2882 & H.R. 3408) has also received a potential second opportunity.
Why give these bills another shot when they had their chance in the last session? Simply put, worker misclassification is HOT. Everywhere you read, someone seems to be talking about it. In the last session of Congress(2007 -2008), most of these bills were introduced in the latter half of 2008 when the session was coming to a close and therefore the legislation could not gain any traction. Another thought could be that the pieces of legislation were not appropriately written therefore there was never going to be any takers. Whatever the real reason is, it’s hard to argue that worker misclassification was a minor blip on the radar back then and now it’s becoming a black hole.
Will these new pieces of reincarnated legislation find their way on to the President’s desk? Well that’s tough to say. They could run into similar obstacles as their predaccessors. What I do know is that if these bills fail to advance again, we might as well nickname them phoenix. With the independent contractor landscape always changing, it’s hard to believe that they won’t rise again from the ashes.
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May 3rd, 2010
A friend and I were talking the other day about how she had just visited a client who thought he was taking on his proper worker classification duty by the horns. The client had advised my friend that he was being vigilant when bringing aboard independent contractors. For the most part, the client was sending questionable independent contractors directly onto someones payroll. However, there were a few instances for which the client had taken the liberty of approving a worker’s independent contractor status. The workers whom he had been evaluating were set up as legitimate businesses, had significant investment in business, were paid on milestones, and the projects were relatively short term with little-to-no control. What the client wasn’t taking into account was that they were the independent contractor’s first and only source of revenue. Therein lies the problem.
I’m not going to turn this blog into a public service announcement denouncing all independent contractors who are just starting out. Unfortunately they serve as just one example of how classifying workers is no easy task. Put yourself in this position: you’ve engaged a independent contractor for a short term project. Business continues to grow and before you know it, that initial three month project has turned into a nine month project. The independent contractor knows they’ve got a pretty nice gig, so there’s little chance that he/she is going to decline the extension. What could have potentially been a small percentage of the independent contractor’s income for the year has now turned into something bigger. Fast forward to the end of the project and the independent contractor finds themselves without another gig on the horizon. Days and weeks go by without work so what happens next? They have to pay bills so what do they do? They file for unemployment. Was the decision of the worker premeditated? Most likely not. Could it lead to an inquiry by the IRS or EDD? I wouldn’t bet against it.
This is an example of a problem that could arise when dealing with any independent contractor, let alone a first time contractor. I would even go as far as to say that the example I have provided was somewhat extreme since I’ve rarely crossed paths with an independent contractor who was truly set up as a business or was being brought on to perform a project that was free from control. You could even swap out the unemployment portion and replace it with workers compensation and it would still draw interest from the government.
So what’s the point to all of my babble? No matter how closely you’ve examined a worker and provided them with independent contractor status, it’s still out of your hands. You can only do so much to prevent an independent contractor audit. Whether the worker conducts themselves like a true independent contractor is a whole different story. I’ve used the examples of an independent contractor filing for unemployment and workers compensation. Not only does a company have to worry about those issues but also whether or not the independent contractor is filing his/her taxes. When does the worrying end? With so much to think about, I can see why companies hire part-time workers or utlilize third party agencies to payroll all non- employee workers: independent conractors or not.
When speaking to clients, rarely have I encountered a company who didn’t want to do the right thing when it came to worker classification. Unfortunately, when companies let their guard down, audits strike. I used the conversation between a friend and I because I thought it summarized how most companies handle their independent contractor classification dilema. Whether you perform independent contractor evaluations yourself or outsource it to a vendor, no company thinks that a “harmless” company decision will ever land them in an audit.
Tags: Audit, independent contractor
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April 16th, 2010
By now, you might have seen a headline with the words lawsuit and Hooters occupying the same title. If you didn’t bother to read on, you might have made an assumption that someone probably touched someone inappropriately and voila, a lawsuit appeared. Well, that’s not what happened and because the lawsuit initiated in California, it’s probably no surprise that it has to do with wage and hour violations.
The girls in the orange shorts who serve saucy wings are suing certain California Hooters restaurants for having to buy their own uniforms, lack of legally mandated breaks/meals period and not recieving tips. The lawsuits also go on to mention that the Hooter girls worked special events without being sufficiently compensated.
Though the legal action is not in the form of a state wide class action lawsuit, lawsuits have been popping up all over California that claim similar offenses. Interestingly enough, the lawsuit does not come without a counter argument as the owners of the select California Hooters restaurants claim that they purchased two sets of uniforms for the workers. The owners also indicate that additional uniforms are were available for purchase for convenience purposes or perhaps a result of weighty issues (now that’s hitting below the orange belt) . Unfortunately for the owners of the select restaurants, California law indicates that businesses who require uniforms must pay for them.
Up to this point, we had heard of wage and hour violations within industries such as retail, IT and grocery. Who would have thought wage and hour issues would hit the delightfully tacky yet unrefined restaurant chain. I mean how harmful can an orange clad, tight shorts wearing, cleavage showing waitress really be? The answer is extremely! Especially when it comes to labor laws and not just the ones here in California. One can say that Hooters has gotten themselves in a real pickle and the not the good, fried kind that they serve in their establishments but that’s for another blog at another time.
In a time when worker misclassification and wage and hour lawsuits run rampant through the headlines, how could Hooters not pay attention to what was going on around them? Whatever the reason is, I’m going to chalk it up to the “It will never happen to us” philosophy. This is goes to show you that no industry is exempt from the labor accusations that Hooters faces today. Stay tuned for more information.
Tags: Hooters
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March 2nd, 2010
If you’re like me, you’ve probably been bombarded by more independent contractor news than you brain can handle..make that, wants to handle. Yes, independent contractor misclassification news has hit the print media, the airwaves, specific industry websites, the blogosphere and the local community bulletin board. Heck, it’s even infiltrated Youtube. Youtube? You betcha. Everywhere you read, someone has an opinion on the the whole independent contractor misclassification topic, including yours truly. These opinions seem to come from all forms of people. From the hard core wrestling fans, to industry experts, to politicians, to the girl next door, to the stay-at-home freelancing dad.
So what’s your point you say? The point is that the independent contractor topic is really starting to snowball. It seems that everyday I come across at least a handful of writings that speak on worker misclassificaton. If everyone is writing about it, don’t you think the folks who work for Uncle Sam are interested in the topic. If you don’t think they are then how do you explain the 6,000 random audits that began in February? Their target, employment tax compliance and proper worker classification.
Whether you’re an independent contractor, an employer, an HR professional, etc., take caution because this topic is not going to go away. As a matter of fact it’s only just begun. I’ve been a complete 1099 homer for over a year now and looking back, I’m sure I was the chicken little of independent contractor misclassification. Well, my friends, though the sky may not be falling quite yet, the independent contractor landscape is looking quite dark and ominous.
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February 15th, 2010
So I’m in middle of this long line that’s moving at a decent pace. From what I can see, a very distinguised looking gentleman at the front of the line appears to be handing out money. The line moves faster and before I know it, it’s my turn at the front. I look at the gentleman’s face and it’s none other than President Obama wearing one of those tuxedo t-shirts. He notices that I’m staring and blurts out “it’s formal but I want everyone to know that I still like to party.” What? Before I can respond. He asks me “How much and what do you need it for?” As I’m trying to figure out what to say, my mouth decides to speak on my behalf, “Going to Vegas for a nice weekend so I’ll need a million.” What? I just told Barrack that I needed a million dollars to blow in Vegas. This is crazy! Faster than I can apologize for being a complete idiot, he’s already handed me the money and instructed me to “throw some down on 8 the hard way”. Next thing I know I hear a baby’s cry and I come back to reality. I was just in a far away place, but boy was that place fun.
Now I don’t consider myself the daydreaming type but something must have caused my brainwaves to go awry. Perhaps it’s because I can’t seem to get my head around the budget that President Obama recently signed. I mean c’mon, $25 million for employee misclassification?? It sounds as if President Obama is really bent on trying to tap a revenue stream that sits idle with many employers abusing worker laws. Though I applaud his drive, I can’t come to trust the hands whom have been awarded with this $25 million bag o’ money. Directing funds aimed at putting a stop to employee misclassification sounds like a good idea but is it really worth it if the infrastructure is already in place? Instead of handing over additional money for agencies to do their job, why not instruct them to direct more of their focus toward worker misclassification?
I may sound naive in saying this but if federal and state agencies really wanted to crack down on worker misclassification, how about if they start paying visits to construction sites. I’d be willing to bet that at least three out of ten sites would have a possible offender at that location.
I guess all that I really want out of this budgetary money is for progress to be made. Is that too much to ask? So far this administration has handed out money without the thought of how it will be spent. We don’t need is another federal law aimed at curbing worker misclassification but instead let’s spend the money to enforce the laws we currently have in place. If not, the next time you’re in Vegas look for someone who spending money uncontrollably to see if they have the words “Vegas made possible by the federal government” on a name tag.
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January 18th, 2010
On December 15th, Senator John Kerry picked up where he left off in 2008 when he sponsored S. 2882, the Taxpayer Responsibility, Accountability, and Consistency Act of 2009. The new legislation is aimed at amending the Internal Revenue Code of 1986, which would make it more difficult and costly to misclassify workers as independent contractors. Senator Kerry’s latest bill sponsorship should come as no surprise since he was a co-sponsor in 2008 on S. 3648, the Employee Mislcassification and Prevention Act which included sponsorship by then Senator Obama and the late Senator Ted Kennedy.
S. 2882 would essentially rewrite the Safe Harbor (Section 530) loophole that according to Kerry, “allows employers to treat a worker as an ‘independent contractor’ for employment tax purposes, regardless of the worker’s actual status under the common law test, unless the employer has no reasonable basis for such treatment or fails to meet certain requirements”.
Senator Kerry’s efforts appear to be a direct reflection of what’s going on with his state of Massachusetts as it continues to be a leader in attempting to curb worker misclassification. Massachusetts has led the nation with implementing legislation, issuing advisories and taking the fight directly to the businesses who misclassify their workers.
Now I’m not sure what the end result of this bill will be but I can only assume that it won’t be long until some piece of worker misclassification legislation finds its way to the President’s desk for his approval.
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December 31st, 2009
A few weeks ago a settlement of courier worker misclassifcation lawsuit came through the newswire so I readied my pen….er keyboard for what I thought was surely going to be another Fedex ripping. Let me start by saying that I’m not some Fedex hater. They’re just an easy misclassification target that provides good fodder for discussion. That being said, I was shocked to read that the courier in brown was the one opening up it’s pocketbook.
On December 4th a federal judge approved a $12.8 million settlement in a class action settlement in which UPS couriers sued for being improperly classified as independent contractors. The couriers claimed that they were denied benefits and overtime yet UPS controlled all aspects of their employment relationship. The class action settlement is set to affect some 660 class members.
The latest settlement comes at a time when Brown is in the midst of a $100 million class action lawsuit that was filed in August over not paying OT to account managers who instead were classified as exempt. Up until now, Brown had done a good job of playing possum by allowing Fedex to shine in the negative workplace spotlight. Should there be a settlement in the $100 million class action suit, there stands to be negative marks on the courier that some people consider to be the model citizen of the courier industry. Meanwhile somewhere in Memphis, Tennessee, the folks at FedEx have to be sitting back and enjoying the fact that the spotlight is, for once, not on them. It has to be extra gratifying to know that all of the bad press is aimed at their chief rival.
Whether or not UPS is the new posterboy for worker misclassification is still too early to tell. If they’re smart, they”ll apply the courts findings to their business model. Let’s hope UPS decides to listed to the courts decision by admitting to their wrongdoings and working to correct the problems. It would be a far different approach than the one taken by their FedEx rivals.
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December 22nd, 2009
With worker misclassification issues at the forefront and landmark cases paving the way for added legislation, fines and penalties for improperly classifying workers, it’s surprising that intelligent business leaders still believe they can simply wish away federal or state audits.
And it’s alarming that many businesses are still operating without solid processes in place to ensure compliance when engaging 1099 independent contractors. Given the extreme tax liability of engaging 1099 workers, business leaders shouldn’t assume they’re safe from an audit.
Corporate counsel, human resources managers, procurement leaders, CFOs and others in a position of decision are constantly exposed to information on the risks of misclassifying workers as independent contractors. And still, there’s a propensity to believe they won’t be audited: “Yeah, it may be happening to others, but there’s no way it’ll happen to my company.”
Worker Misclassification Under Scrutiny
The IRS announced it will conduct 6,000 additional audits in 2010 starting in February. What’s the motivation? It’s estimated that the government is losing billions and billions of dollars in unpaid taxes due to the misclassification of employees as independent contractors.
As a senator, Barrack Obama co-authored legislation to remove the last loophole in the IRS tax code, Section 530 of the Internal Revenue Service Act of 1978—a clause the IRS must consider in a 1099 audit that can potentially preclude an employer from paying back taxes, penalties and fines for misclassifying workers.
Currently, there is no reason to think that our new president will move away from this effort given three primary drivers:
1. The government wants and needs the unpaid tax dollars
2. The belief that misclassified workers are not afforded the same rights under Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, Family and Medical Leave Act and more
3. Misclassifying employees and independent contractors is an unfair business practice
There has been more legislation proposed or passed in the past two years regarding worker misclassification than ever before. And conventional wisdom suggests that the effort to crack down on employers will continue to escalate. Recent legislation has significantly increased the penalties and fines associated with misclassification and in some cases, include felony charges and losing the right to operate a business.
A plethora of court rulings exist against employers who misclassify employees as ICs. While many employers are unintentionally misclassifying workers, they still face stiff punishment from failing an audit. Those found to be intentionally misclassifying workers can face even greater consequences.
Elevated Risk for All Businesses
There is far too much evidence that the misclassification issue crosses all segments of business regardless of industry, geography, size and position. It also crosses all divisions of organizations, ranging from customer service, marketing and sales to engineering, information technology and even human resources.
Companies should be taking the proper steps in 1099 risk assessment, especially in this economy. The recession has increased an employer’s risk. Why? There are several reasons:
• Independent contractors who finish a job or are no longer needed in a market where unemployment is at its highest, file claims for unemployment insurance naming the company they were providing services to as their employer
• Laid off workers are rehired as independent contractors performing the same tasks under the same control
• Independent contractors concerned about continuing to provide services file IRS Form SS-8 (or state equivalent), claiming to be an employee
• Independent contractors cannot afford health insurance and file for workers’ compensation
Creating a Proper Worker Classification Process
Many companies attempt to build a 1099 process but typically don’t have the expertise. Or they simply cannot stay current with ever-changing legislation. To complicate this further, the various state and federal agencies that audit an employer’s 1099 relationships use different tests. They can range from the IRS 3 factors/20 questions test to common law, ABC, relative nature of work, FLSA’s economic realities test and many more.
The issue of employee misclassification is clearly approaching top of mind with legislators, government agencies, courts and ethical businesses. The use of independent contractors is growing as well. The combination of the two will inevitably result in greater scrutiny, audits, penalties and fines.
Business leaders: It’s time to stop wishing and take action before action is taken on you. Create your corporate 1099 compliance plan before it’s too late.
Posted in Audit, Independent Contractors, Misclassification | 1 Comment »
December 14th, 2009
About a month ago in the SFGate (San Francisco Chronicle) a blog post seemed to conjure up some heated emotions on my favorite topic, worker misclassification. It all started with a response to a blog that ran in the Wall Street Journal, which in turn the SFGate published: http://www.sfgate.com/cgi-bin/blogs/gettowork/detail?entry_id=50533. I’ll admit that when I first started reading the comments, I got all geeked up that people were so passionate about worker misclassification as much as I and my fellow Secure Talents colleagues. It was like having your children all grown up and making you proud … so I’ve heard.
Anyways, when I continued reading the comments from some readers I realized that these folks were getting themselves all worked up over the “temporary worker” tag more than the actual worker misclassification. Could this small population of blog readers/commenters represent a much bigger number? Chances are that’s probably the case.
It seems that one half of the people felt that worker misclassification is wrong because you’re an independent contractor performing the same job as an employee. Another half felt that being a temporary worker was wrong because you perform the same duties as an employee for a company what can cut you loose at any time. So who’s right?
Those who work through temporary agencies are typically paid on a W-2 therefore they’re someone’s employee. Granted co-employment may exist in many of those situations, it can be remedied. The same cannot be said for employee misclassification since the worker is not anyone’s employee therefore treating him/her as a W2 without paying benefits or employer taxes is illegal.
Now I’m not insinuating that bringing temporary workers onboard as a long term remedy instead of hiring them as W2’s does not go without it’s own shame (can you hear me Redmond, Washington?). I myself was a long term temporary straight out of college when I was working for a telecom firm through a staffing agency for a long period of time. Back then I wondered if a permanent position was ever possible. Lucky for me my temporay status ended after a lengthy 3 year tenure. In fact, the landscape for long term temporaries changed after a very well known software giant found had to pay out on a lawsuit filed by so-called permatemps.
I guess what I am trying to say is that even though both temporary workers and independent contractors fill a short term role and both appear to be utilized by companies as cost cutting measures you cannot compare the two. Simply put, worker misclassification is illegal.
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