Overtime Rules, Another Area for Concern with Contractors
We never want to be perceived as the "harbinger of doom", however we feel an obligation to bring our readers some more information about the potential risks associated with the use of Independent Contractors.
Additionally, it should be clear that we are proponents for the use of this flexible workforce, however, we feel obligated to insure that if not properly managed, the repercussions can be costly.
This recent article points to some of the additional exposure areas that can be challenge to human resource management, legal and procurement with the use of contractors.
The IRS has stepped up enforcement of rules regarding independent contractors. Early this year, the IRS started deploying auditors to conduct intensive audits of an estimated 6,000 employers in different industries and including both large and small companies. The federal government believes that misclassification is on the rise given that independent contractors receive fewer incentives to trim costs during these difficult economic times. The IRS is engaging in vigorous enforcement for various reasons, including to collect more money for the federal tax coffers and as a result of the Obama administration’s friendly approach to labor...
...If a worker has been misclassified as an independent contractor, the worker could be entitled to seek overtime payments for work performed. Independent contractors with newly conferred employee status also may seek other benefits, including unemployment benefits or workers comp, or bring legal action that they would not have done when they thought they were independent contractors.
But that is just the start. While misclassifying a single worker may lead to some liability for overtime payments and other benefits, employers should take a hard look at the bigger picture. An IRS audit could possibly lead to an audit by the federal or state Department of Labor. Such an audit might examine a company’s overall approach to independent contractor classifications and overtime. In fact, Obama’s 2011 budget proposes a joint task force of the IRS and DOL to crack down on independent contractor misclassification.
In addition, workers who believe they have been improperly classified and are owed overtime could band together and bring a class action. That is what is currently happening to Blackwater Security Consultants.
So beware – misclassifying an independent contractor can have substantial, costly consequences, from having to pay overtime and other benefits to one misclassified worker – to an overtime audit of your entire workforce to a class action lawsuit for unpaid benefits and/or overtime.