FedEx Ground has agreed to pay the state more than $3
million to settle claims that the company misclassified its drivers as independent contractors, Attorney General Martha Coakley’s office announced Thursday.
Coakley’s office had alleged that Pittsburgh-based FedEx Ground had made insufficient payments to the state for payroll taxes, worker’s compensation and unemployment assistance as a result of the misclassification.
In the announcement of the settlement, Coakley called it a “step to level the playing field for businesses.”
The settlement followed a joint investigation by Coakley’s office, the Executive Office of Labor and Workforce Development and the Department of Revenue. The investigation revealed that FedEx Ground’s misclassification of employees had resulted in “significant underpayments” to the Department of Revenue, Division of Industrial Accidents and Department of Unemployment Assistance, according to Coakley’s office.
The settlement also provides for a payment for the 13 drivers named in the attorney general’s citation, according to Coakley’s office.
FedEx Ground drivers in the state have also brought their own lawsuit against FedEx Ground - which is pending and not affected by the settlement with Coakley’s office - and FedEx Ground denies liability in the settlement, according to Coakley’s office.
Last week the American Teamster's union announced that they are in favor of the Obama administrations crack down on misclassified workers. You can read more 
about the announcement in our news section. Teamsters Support Senate Efforts to Protect Misclassified Workers.
No real surprise here as the unions continue to try and remain stable in light of the trouble economy. They are going to be behind any efforts to corral jobs from both misclassified union and non-union work locations to help bolster their declining ranks. According to the Bureau of Labor Statistics, "The number of wage and salary workers belonging to unions declined by 771,000 to 15.3 million in 2009, largely reflecting the overall drop in employment due to the recession." In 1983, the first year for which comparable union data are available, there were 17.7 million union workers.
Certainly many union shops have been impacted by the down economy that has hit hard in the manufacturing areas like Autoworkers, etc. As the unions can enlist the government to help them identify what would or should be union positions will continue to bolster their ranks and dues.
Let us know how your company has been effected by unions and contract workers. Share information that might help another company challenged with this area of employment processing.
The impacts of the new health care laws on contingent workforce management will not be fully understood for some time, and could be subject to change before they
take effect. But some provisions of great concern are approaching rapidly, including a little understood and newly highlighted 1099 reporting provision slated to take effect on January 1, 2012.
Like the proposed Employee Misclassification Prevention Act (EMPA) bill, this new requirement would “pierce the corporate veil” of hidden independent contractor vendors and require immediate discovery and control over challenging spend categories such as statement of work consultants and sub-contractors.
According to Michael Tanner, a senior fellow of the CATO Institute:
The latest surprise is Section 9006(b)(1) . . . which requires that businesses provide a 1099 form to every vendor with whom they do more than $600 worth of business over the course of a year. . . Of course businesses already have to file 1099s for outlays on items like consultants. But the new rule will mean that even the smallest of businesses will have to issue a form — and file with the IRS — for virtually every purchase or payment. Consider how many business transactions go on every single day in a $14 trillion U.S. economy. Millions, perhaps hundreds of millions, of forms will be winging their way between businesses and between businesses and the IRS. The potential for mistakes and lost forms would be tremendous. And with errors would come audits and penalties."1
With legislation like this already passed into law, there is no need to wait for the Employee Misclassification Prevention Act to start bringing SOW consultants and incorporated independent contractor vendors -- including project services spend -- into your centralized Contingent Workforce Management program.
You will be required to not only track this spend, but issue 1099s, starting in just a year and a half. Given the tremendous amount of organizational change such a requirement represents, enterprises should look to starting the process of a deep contractor risk assessment now.
After all, even if this particular provision affecting 1099s laws is extended or overturned, the message from legislators and regulatory agencies is clear -- there will be no more hiding of independent contractors for purposes of misclassifying workers.
1. Tanner, Michael. CATO Institute. “Health Bill Floods Business In Paper.” May 6, 2010. http://www.ajc.com/opinion/health-bill-floods-business-521926.html?tag=content;selector-perfector
Posted by Liz Greene
FIRST SUMMARY JUDGMENT RULING FROM THE FEDERAL MDL COURT HOLDS THAT ILLINOIS FEDEX DRIVERS ARE EMPLOYEES, NOT INDEPENDENT CONTRACTORS
In PSC's ongoing coverage of the Federal Express Cases on Employee Misclassification, we bring you the latest update from Illinois District Court.
June, 2010. Source: http://www.fedexdriverslawsuit.com/
FedEx Ground and Home Delivery drivers have been found to be employees under the Illinois Wage Act. The decision was issued by U.S. District Court Judge Robert Miller in the multi-district litigation that Judge Miller has been presiding over for the past five years. (In re: FedEx Ground Package System, Inc. Employment Practices Litigation, Cause No. 3:05-MD-527 RM) This holding came in a May 28, 2010 Opinion and Order granting summary judgment to the Illinois drivers under the Wage Act. The Court did not rule on other claims made by the Illinois drivers, but indicated it will address those claims separately. The decision is important in that it is one of a growing number of decisions in the past few years holding that the FedEx Ground drivers are employees and not, as FedEx claims, independent contractors. The essence of the cases consolidated before Judge Miller is that FedEx Ground has intentionally and consistently misclassified drivers as independent contractors, when they are in reality employees. Judge Miller specifically found that the Illinois drivers were employees under the Wage Act because their work was an essential and a necessary part of FedEx's business. As former CEO Dan Sullivan testified, the drivers are the "centerpiece" of FedEx's "workforce" and they are an "essential component" of the company's business. The Court noted the fact that drivers must wear FedEx uniforms and maintain a personal appearance satisfactory to FedEx. Contractors supply their own vehicles, but they must bear FedEx's logos and advertising. Further, FedEx structures the routes so that the trucks are in use 9 to 11 hours a day. Contractors can hire replacement drivers, but only with FedEx's approval. Finally, the Court noted that FedEx managers were obligated to have business discussions and customer service rides each year in order to maintain FedEx's image and reputation. Drivers' motions for Summary Judgment in 40 other states are pending. Currently, there are 63 lawsuits consolidated in the multi-district litigation. Motions for Summary Judgment have been filed, briefed and are awaiting decisions in almost all of these cases.
PSC 2010 Contractor Survey ResultsAs other labor laws begin to blur in the dust of the D.O.L. and I.R.S's proposed changes, employers are finding it increasingly difficult to stay compliant. Remaining abreast of what rules and regulations are being impacted by proposed changes is
just half the battle. New areas are being looked at with scrutiny to determine what is "fair".
According to Employment Law specialists, Jackson Lewis, LLP, the time a worker actually works is now being looked at for fairness. "Another compliance challenge involves the changing scope of the workday and workplace. Some employees use cell phones, PDA's and home computers to access company networks, check e-mail, and listen o voice mail during "nonworking" hours. Other spend time in security clearance lines at airports, putting on and taking off protective gear before and after their jobs duties. These increasingly common practices push the boundaries of the workday and workplace and challenge the wage and hour compliance."
How many hours a day do you commute to work? Are you working or commuting. We know we all do it but it certainly will be hard for company's to figure out what's fair and enforcible.
Please let us know how you see this issue...what's fair?
who are facing
The Department of Labor (DOL) will find employers in violation of the law an
d will take legal action against them if they do not have an effective plan in place to protect workers from violations of their workplace rights. Companies without such a plan are breaking the law.
The DOL Spring 2010 publication, issued this week, specifically says, “Employers and others must ‘find and fix’ violations — that is, assure compliance — before a Labor Department investigator arrives at the workplace. Employers and others in the Department’s regulated communities must understand that the burden is on them to obey the law, not on the Labor Department to catch them violating the law. This is the heart of the Labor Department’s new strategy. We are going to replace ‘catch me if you can’ with ‘Plan/Prevent/Protect.’”
This means that companies must have a plan to prevent the misclassification of workers as independent contractors. The DOL investigates violations of the Fair Labor Standards Act (FLSA), which includes misclassifying workers as independent contractors. The DOL applies its own test (the Economic Realities Test, which has a different emphasis than the IRS’ 3 Areas of Control Test) for determining whether a company has misclassified an employee as an independent contractor. If the DOL determines that the worker was misclassified, and otherwise would have been entitled to minimum wage and overtime pay under the FLSA, the company may be required to pay the employee back wages and prospectively re-classify the worker as an employee entitled to minimum wage and overtime. These expenses can be cost-prohibitive.
This aggressive new policy exposes employers to investigations by the DOL – investigations in which employers will need to prove their innocence by showing that they have an effective plan in place to protect workers from violations – including violations of the FLSA.
Does your company have a plan?
PSC can help create and prevent. Contact us or take our Free Risk/Reward Assessment.
Finally, it seems like the US Government is going to put some tools into place to assist businesses with ensuring that they are compliant as it relates to classifying their workers properly. We agree with the article and there is no "magic bullet" but there will always be rule breakers but it would be nice to know if you are being 
compliant or not.
By STEVEN GREENHOUSE - The New York Times
In a move that will affect most American corporations, the Labor Department plans to require companies to prepare and adopt compliance plans aimed at ensuring they do not violate wage, job safety and equal employment laws.
The effort, aimed in part at reducing the incidence of employers not paying overtime and improperly classifying workers as independent contractors, will require them to document many of their decisions and share that information with their workers and the government.
In announcing the department’s intentions on Thursday, Deputy Labor Secretary Seth Harris said his department wanted to foster a culture of compliance among employers to replace what he described as a “catch me if you can” system in which too many companies violated employment laws.
Mr. Harris said many specifics of what companies would be required to do had yet to be worked out. The department’s proposed rules are still being drafted, and businesses will have a chance to respond before any final rules are issued. The process is likely to take more than a year.
But business groups attacked the general idea, saying it would impose new burdens on employers without necessarily improving compliance with labor laws.
Mr. Harris said that while many companies had a culture of compliance, too many others flouted wage and safety laws after weighing the costs of compliance against the benefits of breaking the law and the risks of getting caught.
“They are playing a dangerous game of catch me if you can, and they are putting workers’ rights, even their lives, at risk,” Mr. Harris said in an appearance at the Center for American Progress, a liberal research group in Washington.
Department officials say they hope the plan will greatly reduce problems in industries with widespread wage violations, like restaurants and discount retailing, and those with widespread safety violations, like coal mining and construction.
“Employers will have to put together a plan that is designed to avoid violations of workplace laws,” he said. “In safety and health, they will have to prepare a plan that will avoid safety hazard in the workplace. They will have to implement the plan, and they will have to make sure the plan, as implemented, is effective in avoiding violations for risks and hazards to workers.”
Mr. Harris said the limited number of Labor Department inspectors — a few thousand — makes it hard to protect the nation’s 140 million workers at nine million workplaces. “We cannot abide an economic calculus that exploits the fact that the Labor Department cannot and should not look over every shoulder,” he said.
Giving one example, Mr. Harris said companies that classify workers as independent contractors — often to avoid paying Social Security taxes and circumvent wage laws — would have to prepare a written explanation of why those workers should be considered contractors rather than employees. Companies would then have to give these workers the explanation.
Randel K. Johnson, senior vice president for labor, immigration
and employee benefits at the United States Chamber of Commerce, said the employer group wanted to see more details of the proposal.
“But it appears to open the door to a Department of Labor compliance officer second-guessing employers on a wide range of issues and micromanaging how employers run the workplace,” Mr. Johnson said. “A lot of time will be wasted figuring out whether or not compliance plans will pass the Labor Department’s judgment rather than actually addressing the requirements of the law.”
Cynthia L. Estlund, an employment law professor at New York University, praised the department’s plan because “it is important to activate internal corporate efforts for compliance.”
But Professor Estlund said violations would no doubt continue. “There are no magic bullets,” she said. “It’s still possible to engage in what some people call cosmetic compliance.”
Over the past few weeks we have been discussing and sharing a lot of the information that has been coming out about the IRS and the misclassificat
ion of workers. We have covered many of the tax and human resource management aspects of the mounting pressure coming from the IRS.
But what what is the cost risk. We found this article posted by a NY Lawyer and felt that it gave a good example and real numbers to the potential risks.
by Fred Abramson on April 16, 2010
I have a technology company as a client who recently retainedmy office to advise them on a relatively common employment law. The company signed a contract with financial institution to perform help desk related work. They hired ten people to perform the work and had each of them sign an independent contractor agreement. All of the workers performed the work on the job site only. The all worked solely for the technology company for 40 hours a week. The company just received an evil notice from the IRS. The IRS believes that the workers are misclassified as independent contractors and should be employees.
The technology company now wonders if there are penalties for misclassifying the workers as an independent contractor. The IRS looks in part at the intent of the employer. If the IRS reclassifies a worker from independent contractor to employee, the employer may be liable for a penalty based on the amount of the tax that was not withheld because of the original misclassification. If the IRS finds that the misclassification was an honest mistake on the part of the employer, and the employer filed proper returns, the penalty against the employer is:
• 1.5% of the wages paid to the employee; and
• 20% of the amount that should have been withheld from the employee’s wages for FICA, but was not due to the misclassification.
If the IRS finds that the employer failed to file the proper returns, then, except where the failure is due to reasonable cause and not willful neglect, the penalties double. Then, the penalties are:
• 3% of the wages paid to the employees; and
• 40% of the amount that should have been withheld from the employee’s wages for FICA, but was not.
If the misclassification on the part of the employer is intentional and therefore the employer intentionally neglected to withhold the necessary employment taxes, the limits discussed above do not apply in assessing the employer’s liability. The penalties for intentional misclassification are more severe. Moreover, the limits are not applicable to the employee’s share of the FICA taxes if the worker is a “statutory employee,” nor where the employer withholds federal income tax from the worker’s wages, but does not withhold FICA.
Lastly, if the required to pay an “employee reclassification” tax liability, the employer may not recover the tax assessed from the employee. In addtion, the employer may not deduct the amount of tax assessed from the employee’s wages. The Internal Revenue Code provides further that the employee’s liability for his or her share of the tax is not affected by the assessment or payment of the penalty tax by the employer.
If you have a legal question regarding independent contractors in New York, contact the Law Office of Frederic R. Abramson at 212-233-0666
For a free Risk/Reward assessment. Please click below and fill out our quick form.
By Lionel Valdellon of TriNet
PEOs (professional employment organizations) provide small and medium-sized
companies with outsourced human resource services including employment, payroll, benefits, safety, and risk management services.
The PEO delivers value to its customers through a shared tax ID; this model is referred to as a “co-employer” relationship. The co-employer arrangement enables a company to transfer many of its key employer responsibilities to the PEO, including aspects of employer-related risk and compliance.
A common misconception of PEOs is that employers lose control through co-employment. Companies working with PEOs retain complete control over operations, workforce management, building company culture and defining the employment brand.
ASOs (administrative services organizations), like PEOs, oversee the administrative aspects of managing a company’s human resource functions. The most important difference between an ASO and a PEO is that the service provided through an ASO does not establish a co-employment relationship with the employees.
While an ASO does not sponsor employee benefit programs or workers compensation coverage, the ASO is generally active in arranging coverage and assisting the client in securing coverage. The client company remains the sole sponsor when working with an ASO.
Which tasks does a PEO typically handle on an employer’s behalf?
Both U.S. and Canadian governments now recognize there are two employers in a co-employment situation, but for the most part, government agencies look at the PEO as being as the responsible party for the administration and HR. They consider the PEO the “employer of record” for the purposes of federal and state employment laws such as wage and hour, civil rights, and similar laws imposed on employers.
This arrangement means employees’ paychecks will carry the name of the PEO – though, to the rest of the world, they are employed by the client. And if there are any legal problems arising from the HR function, the PEO assumes some of that risk.
HR functions that are not core to the business, including payroll and workers’ compensation coverage, are handled by the PEO. The PEO also becomes the sponsor of the employee benefits programs, such as health coverage and retirement plans.
by Maria Ricci, GM, PSC The Contractor Engagement Checklist we produced last week prepares the employer of record for the proper on-boarding of a contractor to avoid any 
problems later. The continuity and ease of this administration ultimately gives the client, where the contractor is working, a positive experience.
However, you and your contractor have an important role to play to ensure that the relationship is a successful one. Below you will find some keys to professional conduct that will make the relationship go smoothly and insure a positive outcome for all involved.
CONTRACTOR RESPONSIBILITIES: