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Employee Misclassification Issues - What Every Employer Needs to Know
 

Employee Misclassification Issues - What Every Employer Needs to Know

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In this webinar, the first in our 2011 three part series, Alcott HR Group discusses the recent policy shifts in federal agencies, particularly the Department of Labor and the new intense focus on ...

In this webinar, the first in our 2011 three part series, Alcott HR Group discusses the recent policy shifts in federal agencies, particularly the Department of Labor and the new intense focus on wage & hour enforcement.

We explore the issues of employee/independent contractor & exempt/non-exempt misclassification. Click here to learn how this new legislation will have a significant impact on employers and how misclassifying workers, even by mistake, is now more costly than ever.

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    Employee Misclassification Issues - What Every Employer Needs to Know Employee Misclassification Issues - What Every Employer Needs to Know Presentation Transcript

    • EmployeeMisclassification:WhatEvery Employer Needs to Know
      Presented by:
      Dawn Davidson Drantch, Esq., In-House Counsel
      and
      Bob Chanin, Director of Human Resources
    • To view the recorded webinar, please click on the following link:
      http://bit.ly/iKI0qV
      © 2011 Alcott HR Group LLC
      2
    • ABOUT ALCOTT
      • We are a Professional Employer Organization (PEO)providing outsourced human resource services, support and administration to small and mid-sized companies
      • 23 years in business
      • Majority owned by American Fidelity Corp
      • Accreditations:
      - Employer Services Assurance Corp (ESAC)- Certification Institute for Workers’ Compensation
      • Industry Leadership
      - NAPEO/NYSAPEO
      -ESAC Board of Directors
      © 2011 Alcott HR Group LLC
      3
    • WhatWe Will Cover
      • Current Climate
      • Independent Contractor v. Employee Status Classification Issues
      • Exempt v. Non-Exempt Status Classification Issues
      • Important New Legislation
      © 2011 Alcott HR Group LLC
      4
    • EMPLOYEE MISCLASSIFICATION
      Current climate
    • US Department of Labor Shift in Policy
      “There is a new sheriff in town…Make no mistake about it, the United States Department of Labor is back in the enforcement business.”
      -Hilda Solis, U.S. Secretary of Labor
      © 2011 Alcott HR Group LLC
      6
    • US Department of Labor Shift in Policy
      “We Can Help” Campaign
      “Plan/Prevent/Protect” (employers must “find and fix”)
      Movie theater ad campaign
      USDOL Work Hours Calendar
      Bar Association/USDOL partnership
      © 2011 Alcott HR Group LLC
      7
    • US Department of Treasury Shift in Policy
      • Random audits of 6,000 businesses during next three years to ensure compliance with tax issues, including misclassification
      • “Questionable Employment Tax Practice” Initiative
      • Workshare agreement with state workforce agencies (NY and NJ are two of 34 states signed on to exchange information)
      • Collaboration scenario begins most often with UI claims
      © 2011 Alcott HR Group LLC
      8
    • Wave of Fair Labor Standards Act (FLSA) Suits
      FLSA litigation is now filed more frequently than all other types of federal workplace actions because they are easy to prove, and easy money for plaintiffs and their attorneys!
      • FLSA lawsuits filed in federal court in 2010 numbered 6761 as opposed to 6120 filed in 2009 (and most of these are class or collective actions so the statistics are deceiving)
      © 2011 Alcott HR Group LLC
      9
    • State Misclassification Initiatives
      As of February, 19 states have seen some sort of legislative action already this year regarding misclassification of employees as independent contractors
      Many states have commissioned studies to determine the economic effect on the state
      New York’s initiative among the most onerous
      © 2011 Alcott HR Group LLC
      10
    • State Misclassification Initiatives
      NYS Joint Enforcement Task Force on Misclassification(first chair of Task Force in 2007, M. Patricia Smith, is now Solicitor of Labor at USDOL!)
      Audits from exchange of info
      100 full-time auditors
      Identifies more than two and half times more misclassification issues than federal DOL
      In 4 years have identified 31,500 instances, assessed over $11 million in UI taxes, $1.3 million in UI fraud penalties, more than $14.5 million in unpaid wages and $1.5 million in WC fines and penalties
      © 2011 Alcott HR Group LLC
      11
    • EMPLOYEE MISCLASSIFICATION
      Independent contractor/employee
    • Implicationsof Misclassifications
      • Workers Compensation
      • Unemployment
      • Taxes
      • Employee benefits
      • Payment of overtime and minimum wage
      • Discrimination
      • Recordkeeping
      © 2011 Alcott HR Group LLC
      13
    • How is contractor status determined?
      Simply paying on a 1099 is not determinative!
      IRS test = “Right to Control”
      NYSDOL (UI) test = “Manner and Means”
      USDOL test = “Economic Reality”
      © 2011 Alcott HR Group LLC
      14
    • IRS Test for Independent Contractor Status
      Behavioral Control
      Instruction, degree of instruction and evaluations
      Training
      Financial Control
      Investment
      Unreimbursed expenses
      Opportunity for profit or loss
      Services available to the market or other businesses
      Method of payment
      Type of relationship
      Written contracts
      Employee benefits
      Permanence of relationships
      Services provided as key activities of the business
      © 2011 Alcott HR Group LLC
      15
    • NYSDOL Factors for Independent Contractor Status
      Who determines when, where and how services will be performed ?
      Who provides facilities, equipment, tools and supplies?
      Does the “employer” directly supervise the services?
      Who stipulates the hours of work ?
      Does the “employer” require exclusive services?
      Who sets the rate of pay?
      Is attendance required at meetings and/or training sessions?
      Are oral or written reports required?
      Does the “employer” have or reserve the right to review and approve the work product?
      Is job performance evaluated?
      Do absences require prior permission?
      Can the “employer” simply terminate the services?
      © 2011 Alcott HR Group LLC
      16
    • USDOL Economic Reality Test
      The nature and degree of “employer” control as to manner in which work is performed
      “Employee's” opportunity for profit or loss
      “Employee's” investment in equipment or materials required for task, or “employee's” employment of other workers
      Whether services rendered by “employee” require special skill
      Degree of permanency and duration of working relationship
      Extent to which services rendered by “employee” are in integral part of “employer's” business
      © 2011 Alcott HR Group LLC
      17
    • Tips to Prevent Misclassification
      Never classify former employees as independent contractor
      Only use independent contractors who are incorporated and market their services to the public
      Never be an independent contractor’s first customer
      • Pay by invoice and negotiate rate
      No training, reporting, evaluations, handbook, “firing”
      Never permit independent contractor to make employment decisions for your employees
      Have signed agreement (but not determinative as to status)
      Confirm status
      No benefits
      Pay by project (not hourly)
      © 2011 Alcott HR Group LLC
      18
    • EMPLOYEE MISCLASSIFICATION
      Exempt/non-exempt
    • To Be or Not To Be Exempt…
      Under FLSA and state wage and hour laws all employees are non-exempt unless the job fits into one of the very narrow exemptions
      • Non-exempt employees must be paid minimum wage and overtime
      • Cannot give comp time in lieu of paying overtime!!
      • Titles and length of employment are not determinative
      • Paying someone a salary does not automatically make them exempt
      © 2011 Alcott HR Group LLC
      20
    • To Be or Not To Be Exempt…
      Generally, to be exempt an employee must:
      (1) meet one of the duties test; and (2) be paid on salary basis
      © 2011 Alcott HR Group LLC
      21
    • Salary Basis Test
      Minimum weekly salary ($543.75 in NY, $455.00 federal)
      Employee must receive predetermined amount of pay not subject to reduction due to quality or quantity of work
      No docking!
      No deductions less than a full day (unless for certified FMLA absence)
      Full day deductions under very limited circumstances
      © 2011 Alcott HR Group LLC
      22
    • Most Common White Collar Exemptions
      Executive
      Administrative
      Professional
      Outside Sales
      Computer Personnel
      © 2011 Alcott HR Group LLC
      23
    • Executive Exemption Duties Test
      Each part of the test mustbe satisfied
      “Primary Duty” consists of managing the enterprise or customarily recognized department or subdivision thereof;
      regularly and customarily supervises two (2) or more employees; and
      has authority to hire and fire other employees or his/her suggestions and recommendations regarding hiring and firing and advancement and promotion or other change of status are given particular weight.
      © 2011 Alcott HR Group LLC
      24
    • Administrative Exemption Duties Test
      Each part of the test must be satisfied.
      “Primary Duty” consists of the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
      primary duty must include exercise of discretion and independent judgment with respect to matters of significance
      © 2011 Alcott HR Group LLC
      25
    • Professional Exemption Duties Test
      Each part of the test must be satisfied.
      paid on salary or fee basis;
      doctors, lawyers and teachers can bypass salary and fee basis requirements;
      “Primary Duty” consists of the performance of work that requires knowledge of an advanced type in a field of science or learning, customarily acquired by a prolonged course of specialized intellectual instruction.
      © 2011 Alcott HR Group LLC
      26
    • Highly Compensated Employees
      $100K/year;
      at least $455/week;
      salary (or fee) basis;
      regularly and customarily performs one or more of the exempt category duties
      © 2011 Alcott HR Group LLC
      27
    • Outside Sales Exemption
      Inside sales people are most always non-exempt
      • Outside sales people are exempt only if they regularly and customarily work at the customer’s place of business (not at the salesperson’s home!)
      • Does not include sales made by mail, phone or internet unless incidental to in-person meetings
      • NY requires written commission agreements
      © 2011 Alcott HR Group LLC
      28
    • Exempt Computer Professionals
      Can be paid on salary basis or hourly basis if paid at least $27.63/hr
      “Primary duty” consists of writing programs, engineering software, or engaging in systems analysis
      Must be more than “help desk personnel”
      © 2011 Alcott HR Group LLC
      29
    • EMPLOYEE MISCLASSIFICATION
      Important new legislation
    • Pending Legislation
      Employee Misclassification Prevention Act (died in Committee last Congress)
      Amend FLSA to require all employers to keep records of non-employee service providers; require employers to notify if worker is employee or independent contractor; advise workers of right to challenge classification; unlawful to incorrectly classify; penalties of up to $5,000 per violation for repeat offenders
      Fair Playing Field Act (died in Committee last Congress)
      Amend the provisions of the Tax ; require written statements to each independent contractor of Federal tax obligations, labor and employment law protections that do not apply to independent contractors, and right of independent contractor to seek status determination from the IRS
      © 2011 Alcott HR Group LLC
      31
    • New NY Legislation
      NYS Construction Industry Fair Play Act (effective 10/10)
      • Creates presumption that any person performing services for construction contractor is employee and not independent contractor
      • Definition of construction industry: constructing, reconstructing, altering, maintaining, rehabilitating, repairing, renovating or demolition of any building, structure or improvement or relating to the excavation of or other development or improvement to land
      © 2011 Alcott HR Group LLC
      32
    • New NY Legislation
      NYS Construction Industry Fair Play Act (cont’d)
      ABC test used to determine if truly independent contractor
      A)Free from direction and control in performing the job; and
      B)Performing service outside the usual course of business for the company; and
      C) Engaged in an independently established trade, occupation or business that is similar to the service they perform.
      12 part test to determine if independent business entity and each part must be satisfied!!
      © 2011 Alcott HR Group LLC
      33
    • NYS Labor Law §195 amended in late 2009
      • Written notice required at time of hire
      • rate of pay
      • overtime rate for non-exempts
      • pay date
      • Exemption if applicable
      • NYSDOL has templates on its website for each type of pay structure
      • Signed employee and employer acknowledgement required
      © 2011 Alcott HR Group LLC
      34
    • NYS Wage Theft Prevention Act
      Amends Labor Law section 195 again
      Effective April 9, 2011
      “protecting thousands of hard-working men and women from unscrupulous employers who steal their earnings by paying less than minimum wage, misclassifying them as independent contractors, forcing them to work off the clock and various other schemes” -NYS Senate website
      © 2011 Alcott HR Group LLC
      35
    • NYS Wage Theft Prevention Act (cont’d)
      • 195 Form must now include all info required currently, plus:
      basis of pay (hour, day, shift, commission, salary, piece, etc. )
      any allowances claimed as part of minimum wage (e.g., tip or meal or lodging allowances)
      name of the employer (including any DBAs, main and mailing address of the place of business and employer’s phone number)
      © 2011 Alcott HR Group LLC
      36
    • NYS Wage Theft Prevention Act (cont’d)
      • Forms must:
      • be given to employee at time of hire, before any work is performed
      • be given to all employees by 2/1 of each subsequent calendar year
      • be provided in English AND employee’s primary language as indicated by the employee if DOL issues such form template (employee must sign and affirm this)
      • any changes to info on notice must be given to employee in writing at least seven days prior to change (unless changes are indicated on employee wage statement)
      • All forms must be retained for six years
      © 2011 Alcott HR Group LLC
      37
    • NYS Wage Theft Prevention Act (cont’d)
      • Wage Statement must now include all info required currently, plus:
      Dates of work covered by payment
      Name of employee
      Name of employer address/phone number of employer
      Rate(s) of pay basis thereof
      Allowances claimed as part of minimum wage
      Regularly hourly rate(s)
      Overtime rate(s)
      Number of regular hours worked
      Number of overtime hours worked
      Piece rate, if applicable and the number of pieces completed
      © 2011 Alcott HR Group LLC
      38
    • NYS Wage Theft Prevention Act (cont’d)
      • Failure to provide 195 Form within 10 days of hire or failure to provide annual notice:
      • $50 per employee per workweek of violation (up to $2500)
      • Costs and attorneys’ fees
      • Defense if completely and timely paid all wages or had a good faith belief that did not have to
      • Failure to provide Wage Notice:
      • $100 per employee per workweek of violation (up to $2500)
      • Costs and attorneys’ fees
      • Defense if completely and timely paid all wages or had a good faith belief that did not have to
      © 2011 Alcott HR Group LLC
      39
    • NYS Wage Theft Prevention Act (cont’d)
      • If willful violation: Liquidated damages = 100% of unpaid wages
      • Permits Commissioner to obtain accounting of employer assets and additional %15 penalty if failure to comply with Order to Comply within 90 days
      • Adds additional criminal penalties (for corporations, partnerships, LLCs and their officers and agents), civil penalties and bonding requirements
      • Private right of action and attorneys fees
      • Retaliation= can be against employee who doesn’t actually report a violation (and of course, employee who does)!
      © 2011 Alcott HR Group LLC
      40
    • NYS Wage Theft Prevention Act (cont’d)
      DOL can:
      Require employers to post notices of violations in area visible to employeesfor one year
      Require employers to post notices for willful violations of failure to pay wages in area visible to public for 90 days
      Assess a civil penalty between $1,000 and $10,000
      Order rehiring and reinstatement (or front pay), lost compensation, liquidated damages on behalf of each employee, injunctions
      © 2011 Alcott HR Group LLC
      41
    • NYS Wage Theft Prevention Act (cont’d)
      Employers agents and officers who fail to pay proper wages (i.e., overtime) to employees are subject to being found guilty of a Class B misdemeanor, and upon conviction can be fined between $500 and $20,000 and receive up to one year and a day in prison!
      Remember – the NYSDOL and the courts are now viewing this as THEFT
      © 2011 Alcott HR Group LLC
      42
    • If you would like a copy of this presentation or further information about Alcott HR Group, please call 1-888-4ALCOTT or email: marketing@alcottgroup.com