Posts Tagged ‘contractor agreement’

Conflicts Of Interest: 3 Recommendations For Business Owners

Tuesday, November 17th, 2015

The post below is a guest blog from Todd Yates who serves as partner and CEO for CAI’s employee benefits partner Hill, Chesson & Woody.

Conflicts of interest can present themselves at any time, in all aspects of our lives. Where is the line drawn? It requires keen observation to identify them followed by great discipline to abstain from taking part. Many professions have procedures set up to help identify potential conflicts and to guide the involved individuals around them safely.

For example, attorneys search within their firm to see if there are any situations where they could be representing another entity that would create conflict with the representation they are providing for you. Real estate professionals have to disclose if they are working as the agent of the buyer/seller or both. Your CPA will not serve as your auditor as well as your tax preparer.

When it comes to employee benefits, how do you ensure your advisor is really serving as your advisor – not with some other entity’s interest in mind?

My first recommendation is to examine your contractual agreement. Does it clearly identify the services that your broker will provide and outline payment? Does it explain who will pay compensation? If you aren’t paying it, who is? What influence might this paying entity have on your broker’s behavior? Is the method of payment in alignment with your best interest? For example, if the broker’s compensation is a percentage of premium, does it make sense that they would earn more as your costs go up? Does that align with your interest? At HCW, we have full transparency around our compensation in all of these aspects.

My second recommendation would be to examine the products your broker is recommending to you. Does that representative have any influence, other than your needs, impacting their recommendations? Our industry is notorious for brokers getting into the product business. At HCW, we refer to it as the manufacturing business. If your broker goes out and buys a product, or private labels a product, does that bias their opinion?

We have seen many examples of this over the years. The most recent phenomena is brokers buying private exchanges and/or HRIS systems. Once their organization made this investment, I wonder how many of their clients suddenly became “perfect” candidates for this solution? We have seen it with brokers that deliver FSA services, Cobra services, HRA services, etc. Are they ever going to direct you to another vendor’s service over their own? As the old saying goes, “If all you have is a hammer, everything looks like a nail”.

My third recommendation is to evaluate the relationship with your broker and the insurer/reinsurer for your organization. Is your broker serving in a conflicted role there? A great example of this is the emergence of captives. Some brokers have elected to create their own captives. In this case, the broker has likely engaged the services of several third parties to create the captive, but by leading the direction of the captive and the underwriting decisions, whose interest are they really representing? When it is time to negotiate your costs with the captive, are they advocating on behalf of your best interest, or on behalf of the captives’ interest and all of their other clients that are in it? Inherently there are two sides to this negotiation and being on both sides is a conflict of interest. A captive may be a great solution, but have your broker find one that doesn’t position their interest against yours.

At Hill, Chesson & Woody, we understand and embrace that we are in the advice and guidance business. Our clients hire us, expect us to learn their business, the accompanying strategy of that business, and identify methods to create employee benefit plans that align with that business strategy. That is our product! In order to remain clear of conflict we steer away from the previously mentioned scenarios. The only time we elect to break this direction is when we cannot source solutions in the marketplace to provide the outcome our clients need. Then, and only then, will we build a product.

A recent example is HCW’s enrollment services unit. The market was not responding with good solutions for middle market employers. As a result, we elected to build our own service here. We used other company’s HRIS tools and then built the complimentary professional services to accompany it.

Staying true to these principles is hard when you are looking for differentiators amongst brokers. Many firms depend on creating these products to make themselves appear exclusive in some way. I would encourage you to step back from your relationship and look for these types of misalignment and conflicts of interest. Taking the time to evaluate your relationships will help you ensure your broker is only aligned with the best interests of your organization.

Ten Things N.C. Employers Need to Know About Independent Contractors and Joint Employment

Tuesday, December 14th, 2010

Gretchen Ewalt from the Ogletree Deakins law firm shared her expertise on Employee Classification (Employee or Independent Contractor) and Joint Employment at CAI’s October members-only Ask the Expert. Participants left the sessions with a number of recommendations that, if implemented, will limit their organization’s exposure to costly litigation and potential penalties.

Below are some of the points covered in these sessions.

1. Independent Contractor Tests. There are a number of factors considered by the IRS and the USDOL in determining if a worker is an independent contractor or an employee.  A brief description of a true independent contractor is as follows:

  • The employer does not control the means and manner of how a project is performed, only specifying the expectations of the end result.
  • The “contractor” has a viable business concern, having the opportunity to make a profit or suffer a loss, and provides the same services to other employers.
  • The “contractor” absorbs expenses incurred during the project.

2. Penalties for Misclassification. Penalties for misclassifying an employee as an independent contractor include state and federal tax liabilities, as well as back pay for wage and hour overtime violations.

3. Conduct Internal Audits. It is recommended that periodic internal risk analysis audits be conducted to ensure that independent contractors are properly classified.

4. Draft Independent Contractor Agreements. Contracts for independent contractors should be drafted by legal counsel establishing expectations by both parties to clearly show that the independent contractor relationship exists.  Language also needs to be included stating that the contractor waives and relinquishes any rights to the client’s benefit plans and that the contractor agrees to comply with all business/industry standards.

5. Educate Managers and Supervisors. Managers and supervisors should know the difference between an employee and an independent contractor and understand the liabilities incurred due to misclassification.

6. Definition of Joint Employment. A condition where an individual is providing services that jointly benefits two or more employers.

7. Joint Liability. Employers that utilize employees from an outsourcing agency can be held liable along with the agency for complaints filed by those employees with state and federal regulatory bodies.

8. Time Credited for FMLA. The time spent by an outsourcing agency’s employee providing services to a client employer is credited toward FMLA eligibility if that employee is employed as a regular employee by the client employer.

9. Outsourcing Agreements. Agreements with outsourcing agencies should be carefully drafted by legal counsel to ensure that the agency is responsible for taxes, insurance, business licenses and all employment matters, including employee training, disciplinary actions, compensation/benefit programs and maintenance of personnel files.

10. Contract with Reputable Agencies. Make sure that your outsourcing agency complies with all applicable laws and specify such compliance in the outsourcing agreement.  Ensure that their personnel policies/procedures are sound and that their managers are well equipped to effectively deal with agency employee complaints.

If you have questions about employee classification or joint employment, please contact a member of CAI’s Advice and Counsel team at 919-878-9222 or 336-668-7746.

Photo Source: University of Waterlo