This is a guest post from Diane Aull. Diane is the Website Manager for Acroprint Time Recorder Company and editor of their Time For Business blog. Acroprint offers a full range of workforce management products ranging from traditional punch clocks to cloud-based solutions and cutting edge facial recognition systems.
Does your company employ or plan to employ temporary workers, consultants or independent contractors? Then listen up! The Department of Labor (DOL) is concerned that many such workers have been misclassified as independent contractors (ICs) when in fact they are actually employees under the law.
Of course, it’s perfectly legal to hire someone as a temporary or independent worker. However, some companies misuse the IC label to avoid paying payroll taxes, overtime, minimum wage and unemployment insurance for regular employees.
This is unfair — both to the employees themselves and to those companies that do play by the rules.
What is being done?
In 2011, the DOL launched a Misclassification Initiative. This program is designed to ensure fair pay for workers and a level playing field for law-abiding employers.
To kick off the program, the DOL signed “Memoranda of Understanding” with 10 states and the Internal Revenue Service (IRS) promising to share with each other information related to worker classification audits. Since then, four more states have signed on, the most recent being Iowa in January of 2013.
Since the launch of the initiative, the DOL has collected $9.5 million in back wages for more than 11,400 workers.
Why is this important?
How a worker is classified impacts many aspects of their employment:
- Whether the worker is covered by minimum wage or overtime laws
- Worker eligibility for Family Medical Leave Act time off, vacation, sick days and other benefits
- The employer’s potential liability for negligent acts of the worker
- The ability of the worker to sue for wrongful termination or discrimination
- Availability of workman’s compensation and unemployment insurance for the worker
- And more…
But classification is complicated and subject to different criteria, depending on which agency you’re talking to. The IRS has one set of rules, the DOL of has another, and your state labor board may well have a third.
It’s a real mess, and it only looks to get messier.
What are the consequences of misclassification?
You may be wondering if worker classification is really all that big of a deal. The answer, in a nutshell, is YES!
Let’s say the DOL audits your workforce and determines you’ve misclassified some workers. As the first consequence you may find — depending on how you calculated their compensation — you could owe these people back pay to comply with minimum wage laws.
Additionally, if the workers put in over 40 hours in a week, you will almost certainly be liable for time-and-a-half overtime pay for the extra time. (Side note: this is a good reason to track time for all workers, including temps and ICs. If you have their time documented, the courts will generally rely on your records. Otherwise, the court may simply accept the workers’ own recollections to determine overtime pay.)
As much as paying those back wages might hurt, it could represent only the tip of the iceberg.
You could also find yourself fending off the IRS and state officials, seeking back payroll taxes (including the employer’s share of FICA), unemployment taxes, and workers comp premiums — plus interest, penalties and fines.
Beyond that, the workers themselves could pursue legal claims, including possible class-action suits.
You might not even be able to get out from under these obligations by shutting down the business. In July of 2011, the DOL obtained a judgment against the former owners of 1st National Leasing, a defunct company in Tampa, Florida. They were assessed more than $34,000 in back wages owed to former employees who had been misclassified as ICs. Yes, the owners were held personally liable and had to pay the back wages out of their own pockets.
How can you protect yourself?
If you currently have any ICs or temps on staff, your first act should be to consult with your employment law advisor to ensure you’re not taking any unnecessary chances with your worker classification. They should be able to analyze the various criteria and help you compare your current situation with what’s required.
If it’s been awhile since you’ve conducted this sort of review, you may find you need to modify some of your policies and procedures related to ICs and temps in order to maintain their classification. Your supervisors and managers may also need a “refresher course” in what it takes to maintain proper IC classification to ensure they don’t inadvertently get your business in hot water.
You may wish to also create a questionnaire or checklist you can follow to help you assess any new hires to determine their proper classification. Keeping these completed checklists on hand can be evidence of “good faith effort” in the event of a DOL audit.
Worker classification is a complicated issue, and one fraught with peril in today’s lawsuit-prone environment. You owe it to yourself and your business to be aware and take all due precautions.
If you need an accurate, flexible solution to track work hours for independent contractors or regular employees, contact Acroprint at 1-800-334-7190 or online at www.Acroprint.com.
Photo Source: Victor1558
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