Independent Contractor Compliance: What You Need To Know

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Join leading employment attorney Eric Rumbaugh from the law firm Michael Best & Friedrich for this seminar covering the risks and requirements for using independent contractors in your organization. Contingent workforce, 1099 risk, reclassification, coemployment, and more.

Find more resources for independent professionals at www2.mbopartners.com/ic-resources

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Independent Contractor Compliance: What You Need To Know

  1. 1. Independent Contractor Compliance What You Need to Know in 2009 Featuring guest expert, Eric Rumbaugh, Esq. Partner, Michael Best & Friedrich, LLP April 28, 2009
  2. 2. The full screen icon maximizes the presentation area. The “raise hand” icon lets us know you have a question. We can unmute your line to discuss the question if you are on a phone line or if you have a microphone plugged into VOIP. The chat box allows you to send a text question. 2 Copyright © 2008 MBO Partners. All rights reserved.
  3. 3. Moderator Gene Zaino President & CEO MBO Partners 3 Copyright © 2008 MBO Partners. All rights reserved.
  4. 4. Making it easy for independent contractors and their clients to work together, safely and efficiently. Independent Contractor Engagement Specialists Risk Assessments Engagement Solutions Cost Savings Embraced by Consultants 4 Copyright © 2008 MBO Partners. All rights reserved.
  5. 5. Our Guest Expert Eric Rumbaugh, Esq. Partner Michael Best & Friedrich, LLP 5 Copyright © 2008 MBO Partners. All rights reserved.
  6. 6. Understanding the Landscape
  7. 7. Fastest Growing Segment “We expect small and personal businesses will grow from 21 million today to more than 32 million by the year 2018.” - Intuit, Future of Small Business Report, 2008 7 Copyright © 2008 MBO Partners. All rights reserved.
  8. 8. There are over 10 million independent contractors, and this number is on the rise. 8 Copyright © 2008 MBO Partners. All rights reserved.
  9. 9. According to HCI, over 85% of HR and Procurement decision makers plan to maintain or increase their use of contractors. It’s about AGILITY (and cost). 9 Copyright © 2008 MBO Partners. All rights reserved.
  10. 10. What Are the Risks?
  11. 11. Business Risk Security Immigration Business Insurances Intellectual Property 11 Copyright © 2008 MBO Partners. All rights reserved.
  12. 12. Tax Reclassification Risk IRS and State Tax Agencies 12 Copyright © 2008 MBO Partners. All rights reserved.
  13. 13. Co-employment Risk stock options title vii benefits massive pain in general 13 Copyright © 2008 MBO Partners. All rights reserved.
  14. 14. What Are the Consequences?
  15. 15. Tax reclassification can be costly. add it up: Back taxes 15.3% FICA Tax 20.00% Federal Income Tax Up to 6.2% Unemployment Insurance Total = 41.50% of contractors pay* Other penalties Failure to file W-2 or 1099 form Failure to file quarterly returns Failure to pay taxes *Does not assume any legal liabilities if contractor files suit. for three years . . . 15 Copyright © 2008 MBO Partners. All rights reserved.
  16. 16. Penalties can add up, but it’s the class action you might want to be watching for. 16 Copyright © 2008 MBO Partners. All rights reserved.
  17. 17. The IRS may be the least of your worries. 17 Copyright © 2008 MBO Partners. All rights reserved.
  18. 18. Mistakes can be costly. Microsoft paid $97 million FedEx paid $26.8 million (and growing) OC Register paid $22 million Time Warner paid $5.5 million 18 Copyright © 2008 MBO Partners. All rights reserved.
  19. 19. How Are Investigations Triggered?
  20. 20. be concerned about unemployment claims 20 Copyright © 2008 MBO Partners. All rights reserved.
  21. 21. think about workers’ compensation claims 21 Copyright © 2008 MBO Partners. All rights reserved.
  22. 22. Other investigation triggers: individual legal claims 22 Copyright © 2008 MBO Partners. All rights reserved.
  23. 23. Before we continue, a brief pause for questions . . . 23 Copyright © 2008 MBO Partners. All rights reserved.
  24. 24. Myths and Conventional “Wisdom”
  25. 25. 25 Copyright © 2008 MBO Partners. All rights reserved.
  26. 26. Emerging Compliance Trends
  27. 27. “ Within the past 3 years, the IRS has signed agreements with state workforce agencies in 32 states to share employment tax compliance information. About 90% of the information shared is related to worker “ classification issues. 27 Copyright © 2008 MBO Partners. All rights reserved.
  28. 28. a new administration new leaders are heading up agencies everyone intent to make their mark 28 Copyright © 2008 MBO Partners. All rights reserved.
  29. 29. Approaching Legislation
  30. 30. In the last Congress, several bills were written to deal with this issue. One of them – S. 2044 – was co-sponsored by Obama. change we expect: Section 530 might go away More teeth for enforcement More rigorous reporting Changes to COBRA Temp Worker Bill of Rights Sales Tax on specific services 30 Copyright © 2008 MBO Partners. All rights reserved.
  31. 31. And don’t forget E-Verify . . . Not certain, but you need to understand it. 31 Copyright © 2008 MBO Partners. All rights reserved.
  32. 32. Eric’s Predictions
  33. 33. Assessing Compliance
  34. 34. Understand the 3 Areas of Control BEHAVIORAL FINANCIAL RELATIONSHIP But there are different tests for Title VII, Workers’ Compensation, and other risk areas. And all of these differ by state. Got it? 34 Copyright © 2008 MBO Partners. All rights reserved.
  35. 35. Mitigating the Risks Establish and enforce policies and process Educate your organization Maintain accurate records for audit defense Put non-compliant workers on a W-2 Inoculate benefit plans Require workers’ comp for everyone Self-audit regularly Re-assess frequently Get expertise –in house or partner 35 Copyright © 2008 MBO Partners. All rights reserved.
  36. 36. Discussion
  37. 37. Last Words and Next Steps
  38. 38. Eric Rumbaugh Gene Zaino 1-414-225-2742 1-800-220-0469 ehrumbaugh@michaelbest.com gene@mbopartners.com

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