Moderator: SpeakersOFCCP allocates $3.6 million and 11 FTEs to address misclassification in...
34
1 Moderator: Speakers:
Transcript of Moderator: SpeakersOFCCP allocates $3.6 million and 11 FTEs to address misclassification in...
1
Moderator:
Speakers:
Employee: A worker who is subject to the control of the employer;the employer defines what work shall be done and how
Contingent Worker (sometimes called independent contractors) – Aworker engaged to perform services free from the direction andcontrol of the employer, except for the result of the work. (Nearly25% of U.S. workers)
Co-employment – An employment relationship where two separateorganizations exert some control over an employee’s work orworking conditions, resulting in both organizations having actual orpotential legal obligations and duties with respect to thoseemployees
2
PROS Reduces management of “non-core”
work Reduced HR burden of vendor’s
employee (no direct support, butobligation to investigate claimsremains)
Lower cost of benefit administration,training and
development, and other ‘employee-specific” costs
Greater flexibility to staff up or down(no “lay off” issues)
Reduced overhead costs for vendorwork performed offsite
3
CONS Less supervision of work; reliance on vendor to select, develop and retain talent Increased resources required for contract administration and vendor management Loss of worker’s comp immunity to suit Potential for increased risks to confidential data Onsite contractors still incur overhead costs Loss of continuity; ramp up – ramp down costs
“We’ve always done so.”
“Our business model requires it to remain competitive.”
“That is what these workers prefer.”
Reality check: The reasons are totally irrelevant to thelegitimate (legal) reasons that support a valid independentcontractor classification.
4
10 million contingent workers
7% of total employment
5
Up to 30% of employers misclassify workers.
3.4 million workers are contractors, when they should be
employees.
Revenue loss to U.S. Treasury is $3.4 billion, annually:
o Income tax.
o Social Security.
o Medicare.
o Unemployment Insurance Trust Fund.
6
129 FTEs for multi-agency audit and enforcement.
Wage and Hour Division hires 107 new investigatorsfor targeted industry investigations.
FY 2012 budget includes $15 million for the hiring ofnew personnel within DOL’s Wage and Hour Division toinvestigate misclassification.
FY 2012 budget makes $25 million available to statesto enhance their mechanisms for conductingmisclassification audits.
7
OFCCP allocates $3.6 million and 11 FTEs to addressmisclassification in government contract operation.
Office of the Solicitor allocates $1.4 million and 7 FTEsto bring multi-state litigation against large employersdetermined to “abuse” independent contractor status
OSHA adds 2 FTEs to train inspectors on workerclassification issues.
8
Federal/State Budget Deficits
o Increased tax payments
Increased compensation-based private claims
Unpaid Wages or Overtime (Fair Labor Standards Act)
Past Benefits (Health and Welfare, Pension and 401(k))
Workers Compensation Benefits
Monetary Relief under various State and Federal Laws such as: Title VII,Family and Medical Leave Act, Americans with Disabilities Act, National LaborRelations Act
o Focus of Plaintiffs Attorneys
Big damages that are easy to prove
Significant attorneys’ fees9
Today we will be covering:
Determination of independent contractor:
o Understand and recognize the factors that differentiate between
o “contractors” and “employees;”
o Review the various laws that are impacted by improper classification of workers;
o Review the consequences of misclassification.
Joint/co-employment issues.
National Labor Relations Act
Practical takeaways.
10
Common Law Right to Control Test.
IRS Category Test (replaced IRS “20-Factor” Test).
FLSA “Economic Realities” Test.
11
Hiring party’s control over detailsof the work
Worker’s occupation and skill
Relevance of work to company’sbusiness
Worker’s investment, materials
and tools
Location of work
12
Duration of the relationship
Control of work hours
Method of payment
Right to hire assistants
Taxes, employee benefits
Parties’ intentions
Most critical issue who controls the manner and means of work.
Instructions
Training Integration
Services Rendered Personally
Hiring, Supervising, Paying Assistants
Continuing Relationship
Set Hours of Work
Full-Time Required
Working on Business Premises
Order or Sequence Set
13
Oral or Written Reports
Payment of Business/Traveling Expenses
Furnishing Tools and Materials
Significant Investment
Realization of Profit or Loss
Working for More than One Business at aTime
Making Services Available to theGeneral Public
Company’s Right to Discharge
Worker’s Right to Terminate
Behavioral control: Amount of control of where,when and how the job is done.
Financial control: Worker’s pay, business expenses,and facility investment.
Type of relationship of the parties: Writtenagreements, benefits, length of relationship.
14
“Economic reality” rather than “technical concepts.”
The U.S. Supreme Court has held that it is the total activity or situation thatcontrols. Significant factors:
o The extent to which the services rendered are an integral part of the principal’sbusiness.
o The permanency of the relationship.
o The amount of the alleged contractor’s investment in facilities and equipment.
o The nature and degree of control by the principal.
o The alleged contractor’s opportunities for profit and loss.
o The amount of initiative, judgment, or foresight in open market competition with others
required for the success of the claimed independent contractor.
o The degree of independent business organization and operation.
15
Each Statute and Enforcement Agency Has Slightly Different Tests forDetermining Independent Contractor Status:
IRS: U.S. Tax Code (federal income tax withholding).
U.S. Department of Labor:
o FLSA (Fair Labor Standards Act – minimum wage and overtime);
o FMLA (Family and Medical Leave Act);
o ERISA (Employee Retirement Income Security Act).
State Unemployment Laws/Agencies.
State Workers’ Compensation Laws/Agencies. State Income Tax Withholding.
FederalAnti-Discrimination Laws (Title VII,ADA). State and Local Anti-Discrimination Laws.
NLRA (National Labor Relations Act).
16
FLSA Liability: ConsequencesRetroactive entitlement to overtime pay by the contractor for two to threeyears.
Employer likely has not kept accurate time records, leading to inability todefend claims.
Liquidated (double) damages are applied; attorney’s fees can be awarded.
DOL audits and investigations can result.
Class actions can result in exorbitant costs and settlements.
Liability for overtime.
Joint and several liability.
o If team with staffing agency, must be “completely disassociated with respect tothe employment of a particular employee.”
17
State Laws:
Possibility the employee’s share of taxes, which should have beenwithheld, plus penalties and interest.
State tax liability often will trigger investigation into unpaid workers’compensation and unemployment benefits. This also can result converselywhen contractors apply for such benefits after termination.
Suspension or revocation of incorporation or limited liability status,commissioner can revoke “licenses” for repeat offenders, and businesssubject to subsequent audits thereafter (See S.2773)
18
State Laws (cont’d):
Criminal sanctions and administrative penalties, including debarmentfrom public contract and stop work order under New Jersey ConstructionIndustry Independent Contractor Act (CIICA), and significant financialpenalties that are subject to increase if found to be knowing misclassification(See N.J.S.A. 34:20-5)
Responsible for underpaid wages, overtime, benefits or taxes on behalfof misclassified workers under CIICA
19
ERISA Liability:
Class actions.
Retroactive entitlement to benefits by the contractor.
Plan may fail coverage or discrimination tests, or may be
deemed to violate minimum participation standards.
Plan may be liable for wrongful denial of benefits and
breach of fiduciary duty claims.
20
EEOC Enforcement Guidance: Application of EEO Laws toContingent Workers Placed by Temporary EmploymentAgencies and Other Staffing Firms:
o Covers temporary employees, leased employees and project
o management.
o Staffing firms must hire and make job assignments in a non-
o discriminatory manner.
o Both staffing firms and their clients share EEO responsibilities.
o Both client and staffing company are considered employers if they have theright to control the work and have the statutory minimum number ofemployees.
21
Litigation – FLSA/Wage & Hour.
Eligibility for benefits.
Unknown employment issues:
o Discrimination;
o Harassment;
o Immigration;
o Retaliation.
22
The National Labor Relations Act applies only toemployees. A common tactic of labor unions seekingto organize workers is to challenge theindependent-contractor status of a group of workersthat perform a certain function for companies in aparticular industry. The unions then seek a courtdetermination that the workers are employees entitledto the right to organize and bargain for the terms andconditions of their work.
23
Title VII:
Risk of liability based on joint employment.
ADA – Inquiries and Medical Examinations:
“Pre-Offer” stage or “employment” stage?
EEOC: “Offer” occurs when assignment is given.
Family and Medical Leave Act:
“Primary employer” (staffing company): Authority to hire and fire, assignand place, make payroll, provide benefits? Responsible for notice, leavebenefits, and job restoration.
“Secondary employer” (on-site employer): Must accept returningemployee; may not retaliate.
24
Form I-9/Immigration Compliance Liability
o You DO NOT complete a Form I-9 for persons who are contingentworkers
o However, employers cannot contract for labor of a contingent worker ifthe employer knows the contingent worker is an “undocumented” workeror not authorized to work in the United States
o Civil Monetary Fines 2012
• ICE fined Employers $13 million in administrative fines
o Criminal Prosecution 2012
• ICE made 520 criminal arrests tied to ICE investigations; 240 were owners,managers, supervisor or human resources individuals
• ICE required Employers to pay over $9 million as forfeited funds
25
Determine who are legally independent contractors:
o Do they meet the criteria of the tests?
o Review written agreements.
o Examine the facts on the ground – actual job duties.
o Train managers in how to deal properly withcontractors.
o Know the legal risks.
26
Virtually any independent contractor classification could comeunder scrutiny if:
The work is part of the the company’s normal business;
The company exerts significant control over the manner in which thework is performed, as opposed to the quality of the goods or serviceprovided;
The worker cannot or does not work for other clients or customers;and/or
The worker cannot subcontract the work.
27
Consider whether to terminate all independent contractoragreements and rehire as employees.
Consider hiring independent contractors through temporaryagency or other company.
Loosen restrictions and control; allow subcontracting orwork for other clients.
28
1. Do not negotiate pay rates.
2. Do not provide training.
3. Do not negotiate vacation days or personal days off.
4. Do not provide performance evaluations or careerguidance.
5. Do not issue business cards with firm name or logo.
29
6. Do not permit use of facilities or recreationalactivities.
7. Do not regularly include in departmental socialfunctions.
8. Do not directly investigate allegations ofharassment, discrimination, or related issues.
9. Do not discipline or terminate.
10. Do not provide severance payments or employeebenefits.
30
11. Do not provide tools, equipment, uniforms.
12. Do not pay business expenses of contractors.
13. Do not allow contractors to perform the samefunctions of the company’s business.
14. Do not enter into non-compete and exclusivityarrangements that limit the control of work for otherclients.
15. Do not enter into unlimited engagements with no regularend to the term of the contract.
31
Make the agreement with the staffing company, not thecontingent worker.
Clearly designate the responsibilities and services of eachparty — hiring, firing, training, assigning work, making workrules, etc.
Specify job descriptions.
Indicate situations under which employer may terminate thecontract.
Delineate all confidentiality requirements.
Source: U.S. Chamber of Commerce Small Business Nation
32
Stipulate which party is responsible for payroll,withholding, and payment of taxes for the individuals.
Clarify who has primary responsibility for paying andproviding workers’ compensation insurance.
Indicate the extent to which employee benefits will beprovided by the staffing company and the employees’level of contribution.
Source: U.S. Chamber of Commerce Small Business Nation
33
34
