Rules of the Road –<br />Building Your workforce<br /><ul><li>Interns (paid, unpaid)
Independent contractors / Consultants
Part timers
Temps
Volunteers
Employees</li></ul>1<br />Copyright  2011 Jean D. Sifleet - All Rights Reserved<br />A program from the Smart Fast Busines...
About Smart Fast®  –  About Jean D. Sifleet, Esq.<br /> <br />http://www.smartfast.com/pages/about.html<br /> <br />Smart ...
The legal presumption is that workers are employees.<br />If you want to hire workers – and classify them as contractors o...
Contractors are cheaper than employees because you don’t have to pay benefits, payroll taxes, workers comp or unemployment...
Before you get to the classification issue –<br />I suggest that you step back and ask:  What are the business goals?<br /...
Next, I suggest that you take the time to define the work that the worker will be performing.<br />Then, you can better de...
What’s the appropriate classification criteria?<br />Copyright  2011 Jean D. Sifleet - All Rights Reserved<br />7<br />Int...
Lots of legal “rules” …  Lots of “gray”<br />Copyright  2011 Jean D. Sifleet - All Rights Reserved<br />8<br /><ul><li>Fed...
Workers Comp
Unemployment
Wage + Hour
FMLA
EEO
DOL
Tax rules</li></li></ul><li>“Unpaid” internships  –  DOL Criteria<br />Copyright  2011 Jean D. Sifleet - All Rights Reserv...
Unpaid internships = Educational experience<br />Copyright  2011 Jean D. Sifleet - All Rights Reserved<br />10<br /><ul><l...
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Rules of the road contingent employees

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Rules of the road contingent employees

  1. 1. Rules of the Road –<br />Building Your workforce<br /><ul><li>Interns (paid, unpaid)
  2. 2. Independent contractors / Consultants
  3. 3. Part timers
  4. 4. Temps
  5. 5. Volunteers
  6. 6. Employees</li></ul>1<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />A program from the Smart Fast Business Advice Series<br />Presenter: Jean D. Sifleet, Business Attorney<br />
  7. 7. About Smart Fast® – About Jean D. Sifleet, Esq.<br /> <br />http://www.smartfast.com/pages/about.html<br /> <br />Smart Fast®  is a practical and systematic approach to evaluating options and making informed business decisions. Smart Fast® creator, Jean D. Sifleet, Esq. CPA, is a Business Attorney who helps business owners and entrepreneurs by providing solutions to business issues based on her first-hand experiences as a 3-time entrepreneur.<br /> <br />Jean is the author of the Smart Fast® Business Advice Series including many articles, a blog (http://www.smartfast.com/blog/) and books (http://www.smartfast.com/pages/bookstore.html):<br /> <br />Ishift™ – Innovation Shift -- Individuals Shifting Gears for Business Innovation (Infinity 2010) <br />Beyond 401(k)s for Small Business Owners (Wiley 2004) <br />Advantage “IP” – Profit from Your Great Ideas (Infinity 2006) <br />Smart Fast® -- Running Your Business & Staying Out of Trouble (Infinity 2005)<br /> <br />2<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />
  8. 8. The legal presumption is that workers are employees.<br />If you want to hire workers – and classify them as contractors or interns or volunteers or temps … and treat them differently than employees – you have to justify the “classification.”<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />3<br />
  9. 9. Contractors are cheaper than employees because you don’t have to pay benefits, payroll taxes, workers comp or unemployment. <br />Unpaid interns are “free.”<br />But, can you justify the “classification?”<br />The penalties for misclassification are expensive!<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />4<br />
  10. 10. Before you get to the classification issue –<br />I suggest that you step back and ask: What are the business goals?<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />5<br />Seasonal business – peak season help?<br />Additional “sales” people?<br />Provide work experience for employees’ kids?<br />Reduce costs by bringing outsourced functions in-house (IT, delivery)?<br />Leverage skilled existing staff (apprentice-style training)?<br />Hired experienced people -- but avoid layoff cycles?<br />Minimize costs of payroll and benefits?<br />Build goodwill in the community?<br />
  11. 11. Next, I suggest that you take the time to define the work that the worker will be performing.<br />Then, you can better determine how the worker should be “classified.”<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />6<br />
  12. 12. What’s the appropriate classification criteria?<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />7<br />Interns (paid, unpaid)<br />Independent contractors / Consultants<br />Part timers<br />Temps<br />Volunteers<br />Employees<br />Pros & Cons?<br />
  13. 13. Lots of legal “rules” … Lots of “gray”<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />8<br /><ul><li>Federal + State
  14. 14. Workers Comp
  15. 15. Unemployment
  16. 16. Wage + Hour
  17. 17. FMLA
  18. 18. EEO
  19. 19. DOL
  20. 20. Tax rules</li></li></ul><li>“Unpaid” internships – DOL Criteria<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />9<br />The internship is similar to training that would be given in an educational environment (even though it includes actual operation of the facilities of the employer).<br />The internship experience is for the benefit of the intern.<br />The intern does not displace regular employees, but works under close supervision of existing staff.<br />The employer that provides the training derives no immediate advantage from the activities of the intern and, on occasion, its operations may actually be impeded.<br />The intern is not necessarily entitled to a job at the conclusion of the internship.<br />The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.<br />If do not meet ALL these criteria, must pay interns minimum wage.<br />http://www.smartfast.com/blog/unpaid-interns-be-aware-of-the-dol-guidelines<br />
  21. 21. Unpaid internships = Educational experience<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />10<br /><ul><li>In conjunction with a college?
  22. 22. Need a written plan
  23. 23. Include training + skills development
  24. 24. Hands-on learning experience</li></ul>Penalties: Payment of back wages + fines<br />If willful, criminal sanctions + fines to $10K<br />http://www.smartfast.com/blog/unpaid-interns-be-aware-of-the-dol-guidelines<br />
  25. 25. Independent Contractors (1099s)<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />11<br /><ul><li>Cheaper than (W-2) employees
  26. 26. No withholdings, worker’s comp, unemployment
  27. 27. No benefits</li></ul>IRS – 20 factor test<br />MA – More stringent criteria<br />To properly classify a worker as a contractor, the employer must be able to show:<br />One: Freedom from Control – <br />“Services performed are free from the employer’s control or direction.”<br />Example: An independent contractor completes the job using his or her own approach with little direction and dictates the hours that he or she will work on the job.<br />Two: Service is outside the usual course of the employer’s business – <br />“Services performed do not form a regular and continuing part of the employer’s business.”<br />Example: Newspaper carriers were performing the “usual course of business” for the Athol Daily News, whereas the individual doing landscaping in front of the Athol Daily News was performing services “outside” the usual course of business. <br />Three: Independent trade, occupation or business –<br />“Individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service provided.”<br />Example: Is the worker dependent on only one employer? Or does the worker perform services “of the same nature” for multiple employers?<br />
  28. 28. Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />12<br />Independent Contractors (continued)<br />“HAT TEST”: Are contractors “wearing the hat of an employee” or “wearing the hat of his/her own independent enterprise?” http://www.smartfast.com/blog/contractors-are-you-sure<br />Requiring Contractors to set up LLCs or S-Corps is not a safe harbor.<br />Many companies think that requiring contractors to set up LLCs or S-Corps protects them from the misclassification issue. The Attorney General disagrees and will enforce the law against employers that “allow, request or contract with corporate entities such as LLCs or S-Corporations that exist for the purpose of avoiding the Law.”<br /> <br />Penalties for Misclassification<br />The Attorney General’s Advisory says that misclassification can result in violations of the following laws:<br /> <br /><ul><li>The wage and hour laws set forth in M.G.L. c. 149 (treble damages effective July 13, 2008).
  29. 29. The minimum wage law set out in M.G.L. c. 151, s. 1A, 1B, and 19; 455 CMR 2.01, et seq.
  30. 30. The overtime law set forth in M.G.L. c. 151, s. 1, 1A, 1B, and 19.
  31. 31. The law requiring employers to keep true and accurate employee payroll records, and to furnish the records to the Attorney General upon request as required by M.G.L. c. 151, s. 15.
  32. 32. Provisions requiring employers to take and pay over withholding taxes on employee wages. M.G.L. c. 62B.
  33. 33. The worker’s compensation provisions punishing knowing misclassification of an employee. M.G.L. c. 152, s. 14. </li></li></ul><li>Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />13<br />“Part time”<br />ERISA — 1000 hours or more in calendar year, treated same as full-time employee for qualifying retirement coverage<br />DOL — 34 hours or fewer per week<br />FLSA — Treat consistently (works well for seasonal businesses, work surges and vacation fill-ins)<br />(Note: Is this position structured to avoid paying benefits?) <br />
  34. 34. Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />14<br />“Temps”<br /><ul><li>Temp to Hire
  35. 35. Temp Agency
  36. 36. Leased PEO (Professional Employer Organization)
  37. 37. Note: Be cautious of the “Temp” employee classification … since it implies that if the worker stays beyond the temp period (say 90 days) s/he can be considered “permanent” and that raises all sorts of issues – and potentially jeopardizes your “employment at will” status. </li></li></ul><li>Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />15<br />“Volunteers”<br />Aligned with social good?<br />Non-profit? Community Service?<br />Management policy and training?<br />Insurance?<br />Clear guidelines?<br />
  38. 38. Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />16<br /><ul><li>To be productive, workers need to be engaged in meaningful work.
  39. 39. Every “classification” has pros and cons.
  40. 40. All must be managed successfully:
  41. 41. Set Clear expectations</li></ul> See: http://www.smartfast.com/pages/established-tips.html<br /><ul><li>On boarding – coach new workers about what’s expected from them.
  42. 42. Provide supportive business practices and feedback!</li></li></ul><li>Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />17<br />Penalties for misclassification<br />Federal:<br /> Fair Labor Standards Act:<br />Civil Remedy - repeated and willful violations - $1,100 per violation.<br />Back pay recover for 2 years – 3 years for willful violations.<br />Criminal prosecution also possible with fines up to $11,000.<br />Federal:<br />Internal Revenue Service:<br />Failure to file W-2 – $50 per W-2 not filed due to willful neglect.<br />Failure to withhold payroll tax: <br />100% of the employer’s unpaid payroll tax liability assessed against “responsible persons” who “willfully fail to pay.”<br />Company penalties: 1.5% of wages (3% if no information was filed).<br />20% of the worker’s share of the FICA tax that should have been withheld (40% if no information was filed).<br />
  43. 43. Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />18<br />Penalties<br />Massachusetts:<br />Wage and Hour Violations ( M.G.L. c.149:148):<br />Civil action: Treble damages and attorney’s fees<br />Fines: Up to $10,000 and/or up to 6 mos in jail for 1st offense<br /> Up to $25,000 and/or up to 1 yr in jail for additional offenses<br />Willful violations: <br />Fines up to $25,000 and/or up to 1 yr. in jail<br /> (1st offense)<br />Fines of $25,000-$50,000 and/or up to 2 yrs. in jail<br /> (Subsequent offenses)<br />
  44. 44. Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />19<br />Penalties<br />Massachusetts:<br />For Workers Compensation (M.G.L. c. 152:25C):<br />Fines: $100 per day of non-compliance<br />Criminal penalties: Up to $1,500 fine and/or up to 1 year in jail<br />Stop work order<br />Unemployment Compensation (M.G.L. c. 151A:15):<br />Failure to pay contributions owed: Penalty of up to 100% of total unemployment contributions due plus interest (12%).<br />Knowing violations or fraudulent actions: Penalty of up to 100% of total unemployment contributions due PLUS a penalty equal to an amount the individual collected while employed.<br />State tax withholding considerations:<br />$500 penalty – fraudulent statements<br />Fine between $100 - $5,000 and/or 1 year in jail<br />
  45. 45. Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />20<br />Summary - Key Questions:<br />What are the business goals?<br />What is the worker expected to do? (work plan)<br />How will the worker be classified?<br />Check the rules?<br />Get advice?<br />How will you measure results?<br />What will you learn from the experience and incorporate in business practices?<br />
  46. 46. QUESTIONS?<br /> Jean D. Sifleet, Esq.<br />(508) 361-0916<br />jean@smartfast.com<br />Copyright 2011 Jean D. Sifleet - All Rights Reserved<br />21<br />

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