New Crackdown On Using Independent Contractors
Posted: Forbes Magazine
Author: Robert W. Wood
Whether to hire employees or independent contractors can seem like a no-brainer. With independent contractors you don’t have to withhold taxes or pay benefits and they are easier to fire. But if your “independent contractors” are reclassified the IRS can assess crippling retroactive penalties.
Classically, employees go to work at set hours while independent contractors set their own. Employees follow orders, while independent contractors don’t. Employees receive regular paychecks while independent contractors are paid by the job.
Employees work year-round, while independent contractors are temporary. Employers control employee actions, while independent contractors work on their own. Of course, in real life lines blur and classifications are second-guessed.
Plus, the seamless flow of information means one investigation often triggers another. A small worker status dispute that doesn’t seem worth fighting may trigger a large one and then another like dominoes. The contractor or employee decision involves taxes, labor and employment law, benefits, worker’s compensation, unemployment insurance and more.
Increasingly, the IRS, Department of Labor (DOL) and state governments are swapping information. A GAO report claims the IRS is losing billions, while a DOL study says up to 30% of employers misclassify workers. But change is on the way. The DOL announced in 2010 that it would issue regulations requiring companies to write a classification analysis for all workers, including independent contractors.
These proposed regulations are expected to require companies to explain why the worker is or is not covered by the Fair Labor Standards Act. Companies may have to show each worker a copy, leading many to refer to these rules as “Right to Know.” There’s a similar theme in the Fair Playing Field Act of 2010 (H.R. 6128, S. 3786). Despite President Obama’s support it didn’t pass but the bill may return.
It would require giving each independent contractor a kind of written Miranda warning notifying the independent contractor about:
The federal tax obligations of an independent contractor;
The labor and employment law protections that do not apply to independent contractors; and
The right each independent contractor has to ask the IRS to determine whether he or she is an employee or independent contractor.
If you use independent contractors, consider the strength of your case and how many workers you have. Tally the cost of fighting reclassification or giving in. If your case isn’t strong, you may be able to revise your contract to improve it. But you are better off considering these issues before an audit or litigation.
Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Legal Guide to Independent Contractor Status (5th Ed. 2010, Tax Institute). This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
PSC to host Seminar on Independent Contractor Misclassification
Subject: Avoiding the Risks of Employee Misclassification
As policymakers take a closer look at labour regulations, organizations that rely on independent contractors are faced with new threats. Fines, lawsuits, and other penalties can be financially devastating. Are you at risk? Join us and find out. Our seminar;
Effectively Managing Independent Contractor Expenses and Risk
Friday, November 23rd | 12:00 – 1:00 p.m.
Trump International Hotel & Tower
325 Bay Street | Toronto, ON M5H 4G3
Due to the nature of this event, seating is limited. To confirm your attendance, RSVP today.
Join Payment Services Corporation, a leading provider of employer of record and independent contractor (IC) management services, for an informative networking luncheon featuring Daniel A. Lublin, one of Canada’s foremost employment law experts.
- Examine the issue of employee misclassification
- Understand the risks your organization could be exposed to
- Discover best practices for engaging independent contractors
About the Speaker
Daniel A. Lublin is a workplace lawyer and media commentator.
He practices workplace law across Canada, representing both individual and corporate clients in employment, human rights, and labour relations matters, with particular emphasis on wrongful dismissals and employment-related litigation.
Since 2008, Carswell’s annual survey has listed Mr. Lublin as one of “Canada’s Top Employment Lawyers”. He is the Globe & Mail’s workplace legal columnist and he was a national legal columnist for the Metro newspapers from 2005-2012.
OTTAWA, ON – September 11th, 2012 – Payment Services Corporation, (PSC) a provider of independent contractor management and payment solutions, announced today that company co-founder and managing partner Julia Fournier will lead a roundtable discussion during the fourth annual Contingent Workforce Risk Forum. Presented by Staffing Industry Analysts (SIA), the 2012 CW Risk Forum is being held September 18th & 19th at the Hilton San Diego Bayfront in San Diego, California.
The roundtable session, Independent Contractor Engagement Solutions, Who Owns It?, will examine critical issues related to managing independent contractors and how they affect large corporations. Roundtable participants will gain insights and advice on which departments should be strategically involved in management and overall governance. Ms. Fournier has nearly 20 years of experience in global staffing and independent contractor management, making her uniquely qualified to lead this important discussion.
Now in its fourth year, the Contingent Workforce Risk Forum is a conference designed for corporate managers of contingent labor programs where it is imperative to know current and best practices for managing contingent workforce related risks in many areas including co-employment, classifying independent contractors, using Statement Of Work (SOW) consultants, business continuity issues and FMLA, EEO, Title VII wage and hour issues. For event registration, see the SIA website.
With over 50 years of experience in staffing, payroll processing, and contingent workforce management; Payment Services Corporation helps mid-size and large organizations reduce costs, save time, and mitigate risks associated with the use of contingent labor. The company provides accurate and reliable payroll, HR, and independent contractor management solutions, including employer of record service, pass-through processing, administrative support, human capital management consulting, and similar services.
PSC Releases 3rd Annual Independent Contractor Survey Results
OTTAWA, ON – Payment Services Corporation, (PSC) a leading provider of independent contractor management and payment solutions announced today the release of their 3rd annual contractor satisfaction survey.
As businesses continue to expand their use of independent contractors to supply needed resources for growth, the decision as to whether or not to manage this key part of the workforce with internal HR processes or outsource to a PEO (Professional Employer Organization) that specializes in this service must be made. Increasingly, corporations are turning to PEO's recognizing that the added burden and complexity of this specialized service delivery is most efficiently delivered through a PEO, saving time, money and reducing the risks of non-compliance and misclassification. All indications are that the independent contractor workforce will continue to expand and with the use of companies like PSC.
In this, the 3rd Annual Contractor Survey Report, PSC continues to achieve exceptionally high levels of satisfaction from the contractor community. “What does this mean to our client companies? Simply put, ensuring that this strategic part of your workforce is comfortable and satisfied with their processing means that you get the best results from their efforts on our clients’ behalf.” Commented Ted Weyn, Managing Partner for PSC.
“We know that contractors are most productive when the level of service provided by their processor is easy and accurate. Our key differentiator is our level of service. Many companies can process, but we do it with excellence and accuracy. We are proud of the exemplary satisfaction results our staff consistently delivers.” Commented Craig Hung, General Manager for PSC.
In this report readers will learn:
- The excellent contractor experience that continues to separate PSC from other PEO's
- How contractors view their experience with PSC
- Specific testimonials from independent contractors under PSC's service program
To access your complimentary copy visit PSC Survey Results and download them now.
Readers, as you all know we continuously strive to keep our US and Canadian clients and followers apprised of the ever-changing Independent Contractor Landscape. Additionally, we have been striving to educate the Canadian Market on what changes and dynamics are occurring in the US in an effort to enable proactive protections against similarly legislative and tax penalties in the engagement of contractor workforce. We continue to write about the looming changes to the Canadian usage of Independent Contractors as a preemptive strike to corporate risk.
The piece below was written by the law firm of Pepper Hamilton who recently produced an update to their April 2010 overview of the IC risks. This piece is as comprehensive a summary on the legislative environment as we’ve seen in recent months. We encourage all of our followers who have potential IC compliance and risk issues to read this article to ensure your HR management is taking proper measures as they pertain to this market place.
“Misclassification of employees as independent contractors” is now a common phrase uttered by state and federal legislators and regulators. State task forces have been formed to crack down on businesses that do not pay unemployment insurance and workers’ compensation premiums or withhold taxes for workers whom the states believe are employees and not independent contractors (ICs). Class action lawyers have been targeting some of those same types of companies, seeking unpaid employee benefits and overtime for workers who are not treated as employees.
This White Paper first examines the risks posed to private businesses and governmental entities that have business models reliant upon the use of ICs and other contingent workers. We then address how those risks typically arise and the costly consequences those risks may pose to companies and organizations using ICs. Finally, this white paper discusses the steps businesses can take to avoid or minimize IC misclassification liability, including restructuring, re-documenting, and re-implementing their business models, voluntary or government-sponsored reclassification, or redistribution of ICs through the use of a knowledgeable workforce management or staffing firm." Read the full article here...
What's your company's potential risk? Use this calculator to find out!
IC Management; Time To Get Ready
May 3, 2012 at 3:00 - 4:00 PM ET
, Vice President of Business Development,HCMWorks
Through the 1980s and 1990s, the staffing industry emerged as a significant part of corporate manpower planning strategies, which prompted an offshoot population of independent contractors. This segment of the workforce was not employed by staffing agencies but rather, they incorporated themselves as a single entity and provided productivity through their newly created “businesses.” This group saw acceleration to its ranks through the Enterprise Resource Planning (ERP) boom, which spawned many niche technology professional experts who found higher wages by representing themselves as “independent corporations/ contractors”. With the diverse modular implementations of the ERP systems growing, the need for SAP, Oracle, PeopleSoft, JD Edwards, Baan and other ERP specialists created a rich supply and dynamic demand. With the technology expertise demand frenzy that continued via the “Y2K” software systems scare of 2000, these dual business elements fueled the continued explosion of the ranks of independent contractors well into the new millennium.
Nearly every week there is news of Independent Contractor misclassification and other "gray area" errors that are resulting in companies primarily (for now) in the US to pay enormous fines and in some extreme cases even serve jail time. This session will review some of these cases and, more importantly, lay out strategy and specific things you should be doing now to prepare for the inevitable audit from the CRA and other government and regulatory bodies of Canada.
Specifically, we will cover the US precedent and how in all of these cases, the company in question could have done more to ensure complete separation from their IC workforce. Further, we will discuss how these cases have increased in number; pointing to a disturbing trend of the US government’s realization of new revenue opportunities. Having seen links to US and Canada business and government actions in the past, we will also show why now is the time for companies here in Canada to be aware of these potential risks and exposures while proactively working to mitigate them. Finally, we will be pointing out specific things that you can be doing right now to lessen your risk.
Take a moment to see what your risk could cost you...
Employment Task Force Recovers $10.9M
April 23rd, 2012
By Livia Gershon
The state's Joint Enforcement Task Force on the Underground Economy and Employee Misclassification recovered $10.9 million in unpaid taxes and other funds from companies that had failed to comply with legal requirements on payment, insurance, taxes and other matters for 2011, according to its annual report. Read the full article here...
We comment regularly on various state and federal initiatives related to the misclassification of independent contractors and the financial risks involved to companies who are found to be non-compliant with current legislation. This article only delivers the total amount recovered in 2011, it doesn't discuss whether the offending companies were small, medium or large enterprises, but as we suggested in our blog last week, governments may be 'cutting their teeth' on smaller cases in order to be ready to scrutinize all sizes of companies as they continue to look for ways to improve revenue and protect workers who are misclassified.
In this time where governments have clearly stated their intention to apply more resources to investigate the misclassification issue, it is essential that companies develop and implement comprehensive independent contractor management programs to ensure they've minimized the potential risk of costly fines, penalties and legal defense costs.
Does This New Worker Misclassification Development Offer Your Company Opportunity?
The Internal Revenue Service is offering a break to employers who come clean about wrongly classifying workers as independent contractors to avoid paying federal payroll taxes, the agency announced this week.
What happens when workers are considered independent contractors? Read the full article here...
This is a great initiative and provides an opportunity that can definitely save your corporation money. A PEO can assist you by performing a risk analysis and give you a clear understanding of your level of risk. Based on those findings they can provide you with a customized package of services to assist your corporation and stop the non compliance moving forward. A wide range of services allowing for substantial cost saving and risk mitigation opportunities are available to you.
How Can Your Company Take Advantage of This Opportunity?
- How many contractors do you have?
- How long have they been under contract?
- What type of agreement is there?
- What has been signed?
Evaluation of Different Levels of Risk
- Does contractor workforce meet criteria of independent?
- Are they incorporated entities?
- Do they carry their own insurance?
- Do they have multiple customers?
- Are they working on a specific project on or off site?
Potential Elements of a PEO Custom Package
- Thorough and strict onboarding process;
- Comprehensive revisit of all existing contractors for status;
- Process all contractors as employees who don’t qualify as contractors;
- Add insurance to contractors as applicable at minimal cost;
- Add easy to use web based system for time and expense entry;
- Expand reporting capabilities for enhanced visibility of saving opportunities;
- Other elements based on corporate need.
Expected Outcomes Based on Case Studies
- Cost savings, potentially significant depending on current situation;
- Risk mitigation that avoids costly fines and penalties of workforce misclassification;
- Satisfied and happy workforce resulting in improved work environment and productivity.
What to do? We know that most companies are going to miss out on this opporunity and the decreased risk of misclassification fines and penalties as well as cost savings that go along with it...unfortunately! Take action now, contact a PSC today and let us help you determine what might be your best next step.
Interested in what our contractor audience thinks of our services? Check out our 2011 Contractor Survey Report FREE!
OTTAWA,ON – Payment Services Corporation, (PSC) a leading Canadian Professional Employment Organization and provider of independent contractor payment solutions announced today the signing of a three year contract with CauseForce, a leading event production and cause marketing firm, to provide professional employment payroll services for their Canadian operations through 2014.
“This is an exciting opportunity for us to continue to demonstrate our reach of services across the Canadian Market.” Commented Ted Weyn, Managing Partner for Payment Services Corporation. “Clients continue to rely on PSC for their independent contractor and casual employee payment processing for three primary reasons: First is our excellence in service as confirmed by our 2011 Contractor Satisfaction Survey results; second is our flexibility in processing capabilities and third is our ability to educate our community on the ever-changing legal and tax landscape as it relates to co-employment and tax liabilities.”
“We chose PSC because of their ability to meet our service and budgetary needs in a short period of time. Their attention to detail and market knowledge just solidified that we made the right choice in selecting them.” Commented Trina McCloud, VP of Finance for CauseForce.
“We have a great team of dedicated service and processing individuals who consistently deliver excellence within an operationally efficient setting.” “We consistently strive to improve our services but are keenly aware that it all begins with a satisfied contractor or employee.” Running our services well above industry standards is what sets us apart from the competition.” Commented Maria Ricci, General Manager of Payment Services Corporation.
About Payment Services Corporation
Payment Services Corporation (PSC) is headquartered in Ottawa, ONand is one of the fastest growing Professional Employment and Payment Processing Organizations in Canada, in addition servicing U.S.markets. With unparalleled experience and service, PSC continues to lead the market in best practices for the better management of independent contractor workforces. For more information, please visit www.paymentservicescorp.com or call 866-972-0616.
About CauseForce, Inc.
CauseForce works with non-profit organizations to help them raise money for their mission. It's just that simple. Since its inception in 2002, CauseForce has produced blockbuster fundraising events around the world that have shattered fundraising records, one after another. For more information, please visit www.causeforce.com or call 323.654.9255.
Aon Corp. Settles Employee Misclassification Lawsuit for $10.5M