Jun 28

California SB 459 Employment: Independent Contractors

By Beth Mesechoff Contingent Workforce Management Comments Off
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On June 23, 2011 bill SB 459 cleared another hurdle towards becoming law by passing the California Assembly Labor Committee by a vote of 4 to 2 to make its way to the Judiciary Committee. 

Bill SB 459:

  1. Makes it unlawful to willfully misclassify an individual as an independent contractor. If found guilty a company would have civil penalties of no less than 5K and no more than 10K per occurrence. If found guilty of repeated violations the result could be as much as 25k for each violation – willful is defined as with voluntary intent.
  2. The company must maintain records by completing a document developed by the EDD for each independent contractor retained.
    1. A notice indicating the individual will be engaged as an independent contractor
    2. What EDD factors were included to determine the individual is an employee or an independent contractor
    3. A statement explaining the impact the independent contractor status has on tax obligations and eligibility for labor and employment protections
    4. Notice to the individual that they can seek advice from EDD or the Labor Commissioner regarding whether they were properly classified
  3. Provides that any person who knowingly advises an employer to treat an individual as an independent contractor, to avoid employee status, shall be jointly and severably liable if the individual is found not to be an IC. (Lawyers and advice received internal to your company are exempt.)

This bill is just one in a long list of bills proposed by various states as well as the U.S. Senate (bill  S3254) to combat the misclassification of individuals as independent contractors.

With all the recent legislation and attention around independent contractors and the focus on documentation requirements that are included you need a partner like SourceRight Solutions who can help you navigate through the often grey waters of independent contractor compliance.

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Apr 27

More on Misclassification

By Beth Mesechoff Contingent Workforce Management Comments Off
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The Payroll Fraud Prevention Act (S.770) [PFPA], introduced April 8th, would amend the Fair Labor Standards Act of 1938 intended to eradicate employer misclassification of employees.  The PFPA is focused specifically on independent contractors for payroll and unemployment purposes.

If enacted, the PFPA will:

  • expand the FLSA to include independent contractors, placing their employment under DOL supervision making employers subject to audits
  • require the DOL to report any misclassifications directly to the IRS
  • institute a penalty from $1,110 to $5,000 per employee for employers caught violating payroll classifications
  • set a provision of triple damages if an employer is caught violating the minimum wage or overtime laws for misclassified employees
  • require companies to provide all employees with written notice on current policy detailing their individual status with the company
  • pierce the so-called “corporate veil” to include independent contractors with business entity types of corporation or LLC
  • establish under federal law a provision that makes it a “special prohibited act” to “wrongfully classify an employee as a non-employee” 

Consistent with the labor policy of the current administration, the PFPA is a revision of the 2010 Employee Misclassification Prevention Act bill that ended up buried in subcommittees. Senators Tom Harkin (D-IA) and Sherrod Brown (D-OH) are the driving force of the Act, having sponsored both the EMPA and PFPA. For the 112th Congress, the Senators polished up last year’s language adding a section that calls for the Department of Labor to establish web page explaining how the PFPA impacts the FLSA should S.770 pass.

So far, the PFPA is still under consideration, assigned to the Senate Committee on Heath, Education, Labor and Pensions. It has yet to be introduced to this session of the House and as of now, has far less sponsors than its predecessor. Stay tuned. 

For the latest info on the PFPA, check the bill’s Thomas page at the Library of Congress website.

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Apr 05

The State of Independent Contractor Relationships

By Beth Mesechoff Contingent Workforce Management Comments Off
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The use of independent contractors has come under increasing scrutiny in recent years at both the state and federal level. Many  states have chosen to adopt their own labor and employment statutes that differ from the federal standards, establishing classification criteria that must be satisfied in order for individuals who work or reside in those states to be treated as an independent contractor (IC). Many states have formed interagency task forces with each other and the Federal agencies to share information and have begun to aggressively audit businesses that use independent contractors in an attempt to replenish depleted state funds without increasing taxes on the small remaining population of working middle class W2 employees.  In contrast, recognizing the impact additional regulations have on businesses, other states have sought to minimize the regulatory burden, largely adhering to federal standards, and, if regulating in areas where federal law is silent, seeking a more business friendly, less  restrictive approach.

As more organizations seek to develop a business model that includes contingent labor and increase the use of independent contractors, it is critical to understand the wage and hour requirement of each state the business operates or sources talent to avoid costly re-classification, wage and hour and class action litigation, to ensure proper worker classification and regulatory compliance States that are move IC friendly, and less regulated include Florida, Mississippi, Nebraska, North Carolina, and Texas. 

California, Massachusetts, Michigan, Montana and New Jersey are examples of states that are more complex and aggressive in their rules governing proper classification of independent contractors. Under Montana law, a person may not perform work as an independent contractor without obtaining an independent-contractor exemption certificate from the state, unless the individual is not required to obtain such certificate pursuant to state law; or chooses to be bound personally and individually by the provisions of a workers’ compensation insurance plan. In California, the law requires independent contractors to report at regular intervals and mandates certain employment training.

Because classification decisions may be questioned by one or multiple government agencies, including the IRS, state unemployment compensation agency, state worker’s compensation agency, state tax department and the U.S. Department of Labor, it is imperative to understand the specific requirements to satisfy all agency criteria to ensure all contingent workers are properly classified.

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Mar 14

Employee or Contractor? Misclassification Continues to be of Issue

By Beth Mesechoff Contingent Workforce Management Comments Off
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During January we  noted the government’s continued focus on proper worker classification, Although the two bills referenced – the Fair Playing Field Act of 2010 and the Employee Misclassification Prevention Act – were not enacted during the 2010 session, this is still a hot topic, and they will likely resurface in some form with the 2011 session. During President Obama’s recent State of the Union address the President made mention of his continued focus on efforts to eliminate tax loop holes and reduce the tax gap resulting from misclassified workers, and how this activity will also aid in balancing the budget.

There are many economic and business advantages of using independent contractors, freelancers, consultants, free agents and seasonal workers – but along with the benefits of independent contractor use, there are also pitfalls. Some businesses might knowingly misclassify employees as independent contractors, but other businesses may mistakenly misclassify workers. Regardless of whether or not misclassification is done with intent, any worker not classified as a W2 employee must be defended and if misclassified, the end result can be quite costly.

Companies that use independent contractors to supplement their workforce or rely on a business model that includes a large subset of independent contractors need to implement strategies to ensure proper classification to minimize their risk and the costly consequences of misclassification. While the precise extent of misclassification is unknown, estimates suggest that it affects 10 percent to 30 percent of all employers.  The DOL spoke of its partnership with the Department of Treasury to jointly coordinate efforts to detect and deter the misclassification of employees and to strengthen and coordinate federal and state efforts to enforce labor law violations arising from misclassification.

Conducting regular compliance audits ensure workers are classified correctly, implementing a contractor compliance program, building and maintaining compliance files for each contractor, and monitoring the landscape for changes in legislation and legal precedence, are critical to mitigating risk.  More and more companies are seeking compliance experts to conduct risk assessment audits and manage contractor compliance programs.

The use of independent contractors is a viable business strategy. As employee misclassification continues to be at the forefront of state and federal agencies as a mechanism to generate revenue and aid in balancing budgets, organizations must ensure they properly classify workers, build defensible files for all independent contractor, and manage independent contractors appropriately to reduce the risk of re-classification.

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Mar 14

How are you Handling the Insurance/Health Care Issue?

By Mary Anderson Contingent Workforce Management Comments Off
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The days of business as usual are numbered. As we discussed previously, health care reform will bring dramatic change for the staffing industry. Key provisions do not kick in until January 2014, but there’s no time like the present to develop a plan for managing change. 

Being prepared might prove tricky; each staffing company’s situation and circumstances are different and there’s no single answer how the law will apply. Regardless, you’re either the steamroller or part of the road. Rather than remain frozen by fear of the unknown, staffing firms can make sure they are handling the insurance and health care issue by having a clear understanding of the implications: 

*Determine if you are an applicable large employer. A large employer is defined as a business that has 50 or more full-time employees, but it’s a little more complicated than that. There are special considerations and definitions for seasonal workers as well as full-time equivalent workers. Applicable large employers will be required to pay the excise tax if one of their employees purchased health insurance through a state exchange and a tax credit or cost-sharing reduction is allowed or paid to the employee. 

*It is not mandatory to provide coverage. Firms can opt out of providing coverage, but if they elect that option, they need to be prepared to pay a penalty. 

*Grandfathered plans are good to go. During the health care debate, President Obama made it clear, “if you like your health plan, you can keep it.” Group health plans in existence when the law was passed are not subject to certain reform provisions. While employers can make some changes to demonstrate compliance, they also need to understand which changes could affect their grandfathered status, such as reducing contributions to employees’ health insurance premiums by more than five percentage points. 

*Consider the cost concerns. Will you need to raise rates in response to reform? Will those costs be passed on to clients? What impact will that have on service levels and profitability? Not only do businesses need to think through a potential rise in expenses, but how to adjust the business model so they can remain competitive. 

*Workforce management should be a priority for small businesses. A temporary worker who works with one agency for fewer than 120 days is considered seasonal. Companies do not need to include seasonal employees in their head count. Businesses with seasonal models will need to track and manage schedules to ensure compliance with hours and wages or risk paying fines for workers that work too many days.

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Mar 08

Should Temporary Workers be Excluded from Mandatory Coverage?

By Mary Anderson Contingent Workforce Management Comments Off
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Staffing services firms that provide contingent, temporary and temp-to-hire workers may find themselves with a permanent problem if an excise tax is imposed on employers with more than 50 full-time employees. The tax will require applicable firms to pay the tax per employee, even if only one purchases health insurance through a state exchange program.

Full-time and full-time equivalent employees are included in the calculation determining whether an employer has 50 or more employees. Full-time equivalent is determined by dividing the total monthly hours of service of employees who are not full-time employees by 120. An employer will not be considered to have 50 or more employees if its workforce exceeds 50 employees for 120 days or less during the year and the employees more than 50 are “seasonal workers.”

However, a reform measure could undermine the benefits of temporary and contract work or discourage staffing firms that already offer health insurance coverage from continuing to do so.

According to the American Staffing Association, U.S. companies employ more than 11 million temporary and contract workers annually. Many staffing firms offer employer-paid health insurance coverage, but few temporary employees participate because the majority of them work for short periods of time. Participation in staffing firm plans is highest (49%) among contract employees—who tend to work in professional, health care, technical, and information technology occupations, and who generally earn higher wages and work on longer-term assignments.

Temporary work is a key factor in reducing unemployment and creating new jobs—and it provides a vital pathway to permanent employment. The majority of staffing employees (77%) view temporary or contract work as a good way to find a permanent job. Likewise, employers benefit from a try-before-hire scenario because they can observe skills, innate talents and cultural fit in potential full-time employees.

A reform measure that imposes a penalty on temporary workers will hamper the ability to find permanent work. That’s why any health care reform proposal should include appropriate provisions that exempt short-term temporary employees from mandatory coverage. The House version of healthcare reform could have imposed large costs on temporary staffing firms. The Senate’s healthcare bill was amended to take into account the nature of temporary employment relationships and offered a degree of relief. Hopefully any new version of healthcare reform will make exceptions for temporary staffing.

In the mean time, employers should review their current health plan arrangements to weigh the various alternatives to comply with health care reform going forward or to opt for paying a penalty in lieu of providing coverage.

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Feb 24

Recent Research Study Predicts Increased Demand for Temp Workers

By Rebecca Callahan Contingent Workforce Management Comments Off
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According to the Palmer Forecast™, demand for temporary workers in the United States is expected to increase 20.3% for the first quarter of 2011. This prediction comes on the heels of the same firm’s Q4 2010 forecast of 20.9%, which was very close to accurate (19.2%). The first quarter prediction is the fifth-consecutive quarter of year-over-year increases in demand for temporary workers.

At SourceRight Solutions, we’re seeing this trend, coupled with an emerging trend of increased permanent hires. The blended workforce – the reality of today’s workplace – will continue to include temporary workers, free agents and traditional employees.  Contingent talent is one of the first job categories to improve as the economy rebounds but we believe these post-recessionary times have forever redefined what constitutes a worker. Stay tuned for further posts on this rapidly evolving business-critical topic.

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Feb 24

Will Health Care Reform Spark the Beginning of the End for Staffing Services Firms?

By Mary Anderson Contingent Workforce Management Comments Off
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We all knew it was coming, but now it’s finally here: health care reform legislation has been signed into law in the U.S. and the first of its changes are going into effect this year. This will bring a sea of change for employees and employers, but what are the ramifications for staffing firms?

Right now, there is a great deal of uncertainty regarding the expected changes. The law is under debate both in congress and in the courts, but what is known is that health care reform will increase access to care for millions of Americans. Starting in 2014, individuals must maintain “minimum essential coverage.” Minimum essential coverage includes coverage under a qualifying or grandfathered insurance company or employer-sponsored plan, government-sponsored program such as Medicare or Medicaid or a state-based exchange.

The Patient Protection and Affordable Care Act adds a new federal requirement, referred to as “employer responsibility,” that also takes effect in 2014. Applicable large employers must pay a non-deductible excise tax penalty if any of their full-time employees are certified as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee. The excise tax will either be $2,000 or $3,000 depending the employer’s situation. For staffing services firms, the potential of paying an additional annual cost of $2,000 per employee either means incurring a cost they cannot recover, mandating employees to pay for company-offered coverage thus reducing their wages, or passing along the expense to clients.

It’s important to think through the widespread implications of this free rider surcharge. For staffing firms that already have a fairly low profit margin, the need to absorb this cost could put them out of business. For employees, it may lessen the appeal of temporary work or decrease opportunities to “audition” for a full-time job. Employers also may rethink their approach to how work gets done. Right now, the contingent workforce is growing and a viable source of talent for many businesses. Increased fees may render its cost structure unsustainable, and as a result, contribute to a fresh spike in unemployment numbers.

President Obama has scheduled a healthcare summit for Republicans and Democrats on February 25 to discuss healthcare reform legislation. To ensure temporary and temp-to-hire positions continue to provide a desirable work option for both employees and employers, make your voices heard and talk to your elected federal official.

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Jan 31

The Blended Workforce: Agile, Efficient—and Risky: Part 3

By Rebecca Callahan Contingent Workforce Management, Managed Service Programs Comments Off
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The blended workforce is playing a growing role in business, and that is making compliance with employment laws a more complicated—and critical—challenge. In the last entry in our three-part series, we’ll review the use of technology, people and processes.

When managing their blended workforces, some companies are taking an approach that utilizes technology to draw on analytics to create a “universal” data platform. This method uses data from existing sources, allowing companies to preserve and leverage their previous investments in technology, e.g., an applicant tracking system or HRMS. It then maintains a repository of this workforce data, covering the full employment lifecycle of all aspects of the blended workforce. With a technology platform such as this in place, companies can measure, manage, and analyze a range of employment metrics, including those related to compliance— across business units, employee levels, and various hiring groups or managers.

Beyond technology, compliance efforts need to consider people and processes. Companies need to determine who will be accountable for managing compliance across all types of talent—company as well as non-company workers. They should establish processes to screen potential workers in the areas of immigration, diversity, and security; monitor changing laws and regulations; establish agreements with on-demand workers; and create, collect, and store worker documentation.

Companies also need to emphasize compliance training across the organization: It is critical that the people who are implementing policy know what to do and why they need to do it. This means not only educating HR professionals and business managers, but also keeping them up to date as things change.

In the end, compliance should not be seen as one group’s problem. Management, human resources, procurement, legal, and tax professionals—and any third-party staffing firms involved—should be involved in designing and executing a comprehensive program. As an enterprisewide effort, an effective program also needs to have executive sponsorship and clearly identified stakeholders in critical departments across the company.

With a blended workforce, staying in step with regulations is no small feat. But the challenges aren’t insurmountable. They will, however, require different approaches and increased vigilance—and success will help companies reduce risk and continue to build a more agile, skilled, and cost-effective workforce.

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Jan 24

The Blended Workforce: Agile, Efficient—and Risky: Part 2

By Rebecca Callahan Contingent Workforce Management, Recruitment, Recruitment Process Outsourcing Comments Off
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The blended workforce is playing a growing role in business, and that is making compliance with employment laws a more complicated—and critical—challenge. In this second post in our three-part series, we’ll examine how to take a broader perspective on this situation.

Because of the complexity of compliance rules, regulations, and enforcement efforts, when dealing with the blended workforce, the right course of action is not always clear, and it can be easy to get things wrong. For example, companies are usually familiar with the need to ensure that independent contractors and contingent workers are not treated as full-time employees. Yet, the IRS estimates that as many as half of the approximately 10 million independent contractors in the U.S. are classified incorrectly and should be considered employees. You don’t want to join the list of companies that have faced lawsuits challenging their classification of and treatment of workers, which include major organizations such as Wal-Mart, FedEx and Starbucks.

In this charged environment, traditional compliance efforts will not always be enough. Instead, companies and their HR professionals should use a number of tools and techniques to strengthen their compliance capabilities and programs.

First and foremost, companies need to take a big picture approach by recognizing that compliance is a multifaceted issue that they will need to address with a comprehensive approach—something that is lacking at many companies. Too often, employers simply don’t have clear corporate policies about how to manage a blended workforce, especially when it comes to compliance issues. Or, they may have some policies in place, but those policies differ across the company or are not enforced consistently.

In moving from a piecemeal approach to an effective, companywide compliance program, employers can start by conducting an operational analysis and risk assessment. This should identify gaps in compliance processes, areas needing improvement, and any issues that might trigger audits. It should include a review of all existing independent contractor relationships across the organization and examine those relationships in light of current state and federal regulations. As much as possible, it should determine the dollar cost of any current violations that it uncovers.

To be effective, a comprehensive compliance program needs to be based on a clear, horizontal view across all types of workers, including regular employees, independent contractors, and contingent workers. But getting that view can be a challenge, because the information it requires is typically spread across a variety of systems in a variety of places. Traditionally, companies have had to piece that information together manually, undertake a time-consuming and expensive integration effort, or go through the cost and disruption of implementing new systems. In our next post, we’ll take a closer look at the role of technology as it relates to people and processes.

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