With temporary workers, flexibility’s the name of the game
Read Article by Tavia Grant
Great insight article from the Globe and Mail extolling the value contingent labor can bring to any corporation. Temporary labor continues to grow in its use from both large and small companies throughout Canada and globally. However, as any company begins to use temporary labor for the first time or strategically expand its usage footprint, there are many “buyer beware moments”.
Contingent labor management can quickly become like “herding cats”. Without proper management and program processes in place the program can rapidly become out of control in 3 key areas:
CRA continues to ramp up its inspection of Independent Contractors (ICs) that might be employees misclassified according to CRA. That can put the company at a potential tax risk with CRA if they determine that the IC is not an IC, but in fact your company’s employee. Also, there are potential risks with the extended usage of temporary personnel in large numbers or ICs in regards to co-employment legal exposure.
Conclusion: Temporary labor is a great asset to any organization in terms of giving them the flexibilities to manage their productivity in a cost effective way. Just stay apprised of the risks and manage accordingly, “An ounce of prevention is worth a pound of cure”.
By James Heeney, special to
It's a matter of days before Bill 168 comes into force in Ontario, providing new protections to employees regarding workplace violence and harassment. Is your business ready?
The legislation takes effect on June 15, 2010. It's important to understand that all employers are required to meet these legal requirements, no matter how large or small the company is.
While large corporations with significant budgets and human resources departments have extensive resources to put these legal requirements into place, navigating through the legal responsibilities may be significantly more difficult for smaller businesses.
Employers who leave these tasks to the last minute may find themselves in non-compliance with the law once the amendments come into force. The Occupational Health and Safety Act indicates that corporations that are in non-compliance will face penalties, including significant fines. Programs are already in place to audit workplaces in Ontario to determine compliance.
To help smaller businesses make the transition, here are five things all businesses need to do before June 15:
1. Conduct a risk assessment
The purpose of this assessment is to determine if any parts of the employer's operation are vulnerable to acts of violence. This assessment is later used to update or develop policies to control the identified risks.
Employers must ensure that they do a complete evaluation of their operations to ensure that the vulnerabilities to violence are identified and addressed. Unfortunately, the bill does not explain how such an assessment is to be done.
An assessment doesn't have to be a complex undertaking, though. It can generally be accomplished by creating a questionnaire and meeting with employees to help identify areas of concern in the workplace.
2. Make necessary changes to the workplace
Using the information gathered during the risk assessment, employers then need to make the necessary changes to reduce the vulnerability to violence in the workplace.
For example, in the retail, bar and restaurant industries an employee may be susceptible to client outbursts. If an employer identifies this as a risk for violence in the workplace, measures should be taken to reduce this risk by installing easily accessible emergency security buttons.
The installation of these security buttons will allow employees to call security and/or the police when they see suspicious, escalating or illegal behaviour. It is easy to see how the ability to contact emergency services can significantly reduce the risk of employees being subject to violence.
However, just because your workplace does not have high risk for this type of behaviour doesn't mean you can avoid making changes. Even offices have risks and the task for employers is to identify them and to make changes where applicable.
3. Develop and review policies with respect to workplace violence and harassment
Employers must ensure that policies are in place with respect to workplace violence and harassment. For employers with five employees or more, the bill says this policy must be in writing and posted in the workplace.
Using the example given above, if there is a susceptibility to client outbursts, it may be necessary for employers to have a policy in place to address this issue. The policies can give employees a guide of the proper protocol to follow when faced with unruly, aggressive or violent customers.
Employers also must ensure that a policy is in place to address the procedure for the reporting and investigating of workplace harassment complaints.
After the initial development, these policies must be reviewed as often as "necessary" (i.e., when there are significant changes in the workplace which may affect violence and/or harassment), but a review must also be done at least annually. These policies are critical documents. Employers can face penalties from the Ministry of Labour for not developing policies in accordance with the new act, and/or not complying with the policies when faced with a workplace violence or harassment issue.
4. Develop and maintain programs to implement the policies
Employers must include in the programs these specific measures and procedures:
- To control the risks identified in the risk assessment.
- For summoning immediate assistance when workplace violence occurs or is likely to occur.
For workers to report incidents of workplace violence or harassment.
- To state how the employer will investigate and deal with incidents or complaints of workplace violence or harassment.
5. Train employees
Employers must provide information and instruction to their employees regarding the contents of the policies and programs. This training is critical, as it implements all of the previously mentioned steps. Employees have the opportunity to learn what they can and what they must do to minimize risks in the workplace, what their obligations are in regards to the policies in place, and what the consequences are for non-compliance with the policies.
After reviewing the policies and programs with employees, an effective form of training is to present employees with realistic fact patterns (a legal term for a summary of events or presentation of the facts surrounding an event) and to demonstrate how to apply the policies and programs to the fact patterns.
Preparing for the changes in the Occupational Health and Safety Act will be a lengthy and detailed process for employers, particularly smaller businesses with limited resources. However, the changes to the legislation are an essential step in ensuring that employers are doing their part in reducing the risk of violence and harassment in their workplaces and to avoiding possible fines and liability.
Read more: http://www.cbc.ca/money/story/2010/05/28/f-james-heeney-workplace-harassment.html#ixzz0pbbIov9n
James Heeney, a partner at Rubin Thomlinson LLP in Toronto who provides counsel to employers and employees on all areas of employment law.
Most of us are aware of the past actions to Microsoft and more recently UPS and FedEx in the IRS's pursuit of tax revenue via misclassified worker investigations. But if misery loves company, these firms have lots of friends.
Here are some that have line up as their closest "friends":
- Hewlett-Packard (Marks v. Hewlett Packard Company)
- Time Warner Inc. (Herman v. Time Warner Inc.)
- Allstate Insurance Company (Equal Opportunity Employment Commission v. Allstate Insurance Company/Romero v. Allstate Insurance Company)
- S.G. Borello & Sons, Inc. (S.G. Borello & Sons, Inc. v Department of Industrial Relations)
- ...and many more have suffered the consequences of worker misclassification.
Perhaps FedEx Corporation’s legal battle will become the newest landmark case, with approximately 30 state class action suits and an Employee Retirement Income Security Act (ERISA) class action filed against the company; settlements are estimated by some to be $1 billion.
Already a California appeals court decision in August 2007 ruled in favor of the plaintiff and FedEx lost its appeal of a $5.3 million verdict. The verdict resulted from a class action that claimed FedEx treated its independent contractors as if they were employees but did not provide them with payment and benefits that full-time employees would receive. The ruling proved that the workers in question, delivery drivers for FedEx Ground, were in fact employees of FedEx and not independent contractors due to the level of control that the company exercised over them.
And if all of the recent legislative action, lawsuits and case studies aren’t eye-opening enough, employers now have more to be concerned with, as current data analysis tools on the market, already in use by several State Unemployment Insurance agencies, allow users to easily analyze the IRS 1099 abstract file with technology that searches and identifies triggers for an audit.
With this technology, a user can establish criteria for queries and can target employers for an audit if, for example, a worker received only one IRS Form 1099 within one year but is paid what the agency views as high-level income. In this case, the agency might suspect that the employer was concealing full-time employment in order to avoid paying unemployment taxes. In the event that an independent contractor is reclassified to employee status during an audit, the employer is responsible for all back taxes, including employer and employee contributions and of course, applicable penalties and fines.
by Maria Ricci
I have a strong belief that whether you are a small, medium size or large corporation, a tenure policy will definitely be one of great benefit to you. Although it is not obligatory for an enterprise to have one, it plays an important role in the proper management of your independent contractor community, it is a highly contributing factor toward the mitigation of co-employment risk and it also promotes cost saving opportunities.
The benefits are not easily acquired. Here are some items to consider when establishing the tenure policy:
- Establish a limit that coincides with the recommended time line present in your labor law standards based on your province or state of business.
- Ensure that the proper resources are in place to monitor-audit the policy.
- Select a vendor management tool that will assist with the quality control of the established policy.
- Seek legal advice to ensure validity and protection of the established policy.
- Create a clear “exception” process because there will be some.
Benefits of voting “Yea” for :
Risks of voting, “Nay”:
- Will reduce the risk of an independent contractor claiming employee status due to length of service.
- The obligation to recruit for new talent in order to comply with the established tenure will assist the corporation in obtaining a more contemporary workforce.
- All of the above will assist the corporation in achieving their cost saving objectives. This will occur with the acquisition of new talent through positive turnover. Through attracting a contemporary workforce wanting to share their gained experience versus being paid top dollar for the experience they have gained through the years working for the same corporation.
- Decreases the financial risks of a negative legal ruling.
- Will increase the risk of having to offer a permanent position to an independent contractor due to length of service.
- Will increase the risk of having to incur unnecessary legal fees to debate the hiring of an independent contractor due to length of service.
- Will increase the risk of not engaging the best talent to get the job done.
- Will increase the risk of paying out of market rates in trying to retain a contractor who has already been there past ideal tenure.
I vote Yea!!
TRUE STORY: A client of ours terminated a contractor who had been with the company for 15 years. Yes, 15 years. The contractor sued the corporation for back severance for the 15 years and other fringe benefits not received. While not yet through the court system yet, the ruling which will most likely be in favor of the employee will be approximately $1.2MM in severance, benefits and taxes.
Please share your thoughts…….
As we have been reporting over the past month on the heightened interest in the Tax Authorities' pursuit of misclassified workers, here is a recent ruling from Massachusetts last week on why the IRS feels that there is an opportunity to generate revenue in this arena.
BOSTON, MA-Two former owners of a temporary employment agency in Stoughton were charged today with paying more than $24 million dollars in unreported cash to employees of their temporary employment agency as part of a conspiracy to avoid paying more than $7 million dollars in taxes, and hundreds of thousands dollars in workers compensation insurance premiums.
(Media-Newswire.com) - BOSTON, MA—Two former owners of a temporary employment agency in Stoughton were charged today with paying more than $24 million dollars in unreported cash to employees of their temporary employment agency as part of a conspiracy to avoid paying more than $7 million dollars in taxes, and hundreds of thousands dollars in workers compensation insurance premiums.
United States Attorney Carmen M. Ortiz; Susan Dukes, Special Agent in Charge of the Internal Revenue Service, Criminal Division – Boston Field Office; Warren T. Bamford, Special Agent in Charge of the Federal Bureau of Investigation – Boston Field Office; and Anthony DiPaolo, Chief of Investigations for the Insurance Fraud Bureau of Massachusetts, announced today that MICHAEL POWERS, age 45, of Wesport, and JOHN MAHAN, age 46, of Stoughton, were charged with one count of conspiracy to defraud the Internal Revenue Service ( IRS ) and their workers compensation insurers, one count of mail fraud, and two counts of false tax returns, all arising out of their operation of a temporary employment agency.
According to the Indictment, between 2000 and 2004, POWERS and MAHAN owned and operated Commonwealth Temporary Services, Inc. It is alleged that in order to avoid paying employment taxes, such as Social Security and Medicare, and to fraudulently reduce the businesses’ insurance premiums, POWERS and MAHAN arranged to pay more than $24 million of their payroll in cash, under the table.
Commonwealth Temporary Services, Inc. supplied hundreds of temporary laborers to businesses throughout Eastern Massachusetts. The amount an employer pays in payroll taxes ( FICA ) and workers compensation insurance premiums is largely dependent on the size of their payroll. POWERS and MAHAN allegedly lied to both the IRS and their insurers about the size of their payroll, and paid the majority of their employees in cash to make their fraud more difficult to detect.If convicted, POWERS and MAHAN each face a maximum of five years in prison, three years of supervised release, and a $250,000 fine on the conspiracy charge; 20 years in prison, three years of supervised release, and a $250,000 fine on the mail fraud charge; and three years in prison, one year of supervised release, and a $250,000 fine on the tax fraud charges.
This case was investigated by the Internal Revenue Service, Criminal Investigation – Boston Field Office and the Federal Bureau of Investigation – Boston Field Office, with assistance from the Insurance Fraud Bureau of Massachusetts. It is being prosecuted by Assistant U.S. Attorney Sarah E. Walters of Ortiz’s Economic Crimes Unit.
The details contained in the indictment are allegations. The defendants are presumed to be innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
In our series on how to be prepared in the various aspects of Independent Contractor risks, we came across this article from a the CPA firm of Habif, Arogeti & Wynne, LLP in Atlanta.
We trust you'll find these Audit proceedures helpful.
IRS Employment Tax Audit Initiative
By Frank Ciaburri
Last fall, the IRS announced a major audit program targeting underpayment of employment taxes by companies. Over the next three years, they expect to conduct approximately 6,000 audits of randomly selected employers for employment tax compliance. A broad cross-section of businesses are targeted, including tax exempt employers. To ramp up for this initiative, the IRS has trained 200 to 300 experienced agents to handle the workload.
Starting this month, the IRS will be sending letters to employers selected for audit. Once selected, a company should expect the audits to be very detailed and time consuming. In addition, the audit may expand into other aspects of company operations.
The audits are part of the National Research Program, which is structured to gather statistical information about compliant and noncompliant employers. This information will be used to help determine whether enforcement or legislative changes will be necessary to address evasion of employment tax schemes. The goal is to test how much of an estimated $15 billion gap in employment taxes actually exists and how to close it. Of course, collecting revenue from non-compliant employers is an important aspect.
The expectation is that the audits will be thorough and will address areas perceived to be issue prone:
- Worker Classification
- Fringe Benefits
- Owner/Officer/Executive compensation
- Reimbursed Expenses
The audits will begin with the examination of federal employment tax returns and in larger companies will typically impact functions other than payroll, including benefits, legal and tax.
Of the issues being examined, employer misclassification of workers as independent contractors has the greatest collection potential for the IRS, as the employer could be liable for employment taxes even if the misclassified workers have paid their employment taxes.
For fringe benefits, the audit focus will be on the proper treatment of fringe benefits and per diems as tax free rather than as compensation. For compensation of owners and other highly paid employees such as officers and executives, the IR will consider whether compensation is reasonable in amount and will include deferred compensation, stock options, and other perks.
Expense reimbursements will be reviewed for compliance with the accountable plan rules to exclude them from compensation.
How to Prepare for a Potential Audit
To make sure your company is ready for an audit, consider taking the following actions:
- Ensure that past employment tax returns and supporting records are available and have been reviewed for compliance with applicable rules. This includes reviewing past employment tax notices and ensuring that they have been resolved.
- Perform a self-audit of your company's employment tax practices and procedures, focusing on the areas the IRS would audit if your company were selected. If issues are discovered in this process, consult with tax counsel to determine the appropriate corrective action.
If Your Company is Selected for Audit
If your company is selected for audit, designate the person that will manage the audit. This may be an internal resource and/or outside tax counsel. In larger companies, an audit may be handled by the payroll and/or tax departments, as they have experience in dealing with IRS audits.
Smaller enterprises, whether they prepare their own payroll or use a payroll services provider, generally should consider having their tax counsel manage the audit, as tax counsel regularly handles IRS audits.
We have a guest writer jumping on the PSC Blog Train today. Maria Ricci is the General Manager for PSC in Canada and has many years of industry experience. Recently she has come upon a reoccuring risk to companies who use contract labor and wanted to share her experiences with us. I'm sure you will find it insightful.
PROTECTING YOUR INTELLECTUAL PROPERTY
by Maria Ricci, GM, PSC
Many corporations today find themselves associated with staffing firms whose multifaceted service offerings include Traditional Staffing, Specialty Staffing, Outsourcing Services, MSP Services, VMS Technology, RPO services, PEO services and what not. A one stop shop philosophy remains the most commonly used value proposition and marketing tool for the majority. Very interesting at the outset and may, at times, seem beneficial. Upon further inspection, risks may present themselves for the corporation regarding the protection of their intellectual property.
A contractor’s professional experience is gained by delivering their services to various and continuous mandates that allow them to put their specialty to work. Contractors will look to staffing companies for assistance in the quest to find these opportunities. Staffing companies make this their priority. A contractor is most valuable to them for placement when they have developed this professional experience particularly within the same industry. This is where the risk presents itself. The Staffing Company will continue to place the contractor where they will continue to deliver the utmost professional and beneficial services which will most often be within a competitive environment to the Corporation. Often then, the contractor finds himself being able to put his experience to practice and sharing his knowledge within this new opportunity and environment. The Corporation’s request for these experienced contractors is high and industry specialized contractors are few. This will prompt the corporation to bring back those same contractors through the years. A corporation’s Protected Intellectual Property has transformed to Shared Intellectual Property.
PSC’s service offering is singularly that of a Professional Employer Organization. This is our key differentiator in comparison to a staffing company. We do not participate in any recruiting activities. We provide 3rd party independent contractor engagement and billing services to those corporations who are manning their Independent Contractor population on their own, bringing known independent contractors back from previous projects or pay rolling independent contractors through staffing companies for long periods of time. PSC’s agreements, contrary to those of staffing companies, allow for and provide all the needed protection for the corporation through our Non- Solicit and Non-Competition, Confidentiality and Non-Disclosure, Intellectual Property clauses which or only amongst some of the clauses within our agreement.
Our value proposition goes beyond the one stop shop.
Please share your thoughts…….
In our series this week about preventative measures organizations can take to mitigate risks and costs associated with the use of Contract Labor, we wanted to address the first line of defense...Be prepared.
Like the Boy Scouts mantra of "Be Prepared", there is no better way of mitigating the risks you might have if your firm were to be pulled into a tax audit for the misclassification of employees. As a basic in Human Resource Management, your firm should work with HR and Legal to craft the company's general position on the usage of independent contractors. That policy should include, but not be limited to:
- How to Engage a Contractor?
- What are the Legal Requirements?
- What is the Tenure Policy?
- What Information do I need to Gather?
- Who do I Need to Contact?
In addition to the policies, create an educational FAQ that can be accompanied to the policies and demonstrate that your organization has take the proper steps to protect, document, and educate its company.
Remember, if you do all these things you won't prevent an tax audit nor will you avoid potential penalties, but having these items in place and documented will demonstrate to the courts and the auditors that you took the right actions to try and "prepare" yourself as best as you could.
If you want help in getting prepared, don't hesitate to take our free Risk/Reward Assessement to determine what exposures your firm might have.
As we have continued to discuss in ongoing Human Resource Management Issues, the ambiguity regarding laws and regulations in the use of Independent Contractors in both the US and Canada remains "foggy". However, there continues to be a push in the legislation to address this issue from both a Tax Compliance approach and through ongoing attempts in the clarification of the employement treatment for Independent Contractors.
But is the fog lifting?
- The Fed Ex driver issues which began as a $350MM tax penalty accessed by the IRS to the Memphis based shipping corporation, has now has wittled itself down to a fraction of that intial accessement.
- Canadian CRA and US IRS efforts to ramp up the investigations of misclassified employees is growing every day.
- Courts are ruling on situational occurances.
Last week, the Canadian Law firm of Gowlings Lafleur Henderson LLP's Ross Wells commented on the Ontairo Court of Appeal's decision...
"that an employer who has a long-term relationship with an independent contractor must grant him/her severance payments as he/she is considered an employee of the company: “It leaves no uncertainty of the entitlement of a dependent contractor to pay in lieu of reasonable notice,” Wells said. Furthermore, he finds the need for employers to have written contracts with dependent contractors. Wells represented Elizabeth McKee in the McKee v. Reid’s Heritage Homes Ltd. case.
For the full article, see “Bringing dependent contractors out of the shadows” in the March 1 issue of Law Times.
While this case brings specific case law decision by the Canadian Courts to light, the entire classification rules and laws surrounding these workers continues to remain in the mist and puts employers in a vulnerable position of which there is no clear "right or wrong" answer.
All an employer can do is take precautionary steps to mitigate risk.