Tag Archives: Independent Contractor Misclassification

04.06.17
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What is the IRS Voluntary Classification Settlement Program (VCSP)? How Can It Limit Misclassification Liability?

dollar-independent contractor misclassification-IRS-VCSP-1443244_1920The IRS offers a settlement option for companies that suspect they have been misclassifying their independent contractors and wish to reclassify them as employees.

The Voluntary Classification Settlement Program (VCSP) requires companies to meet certain eligibility criteria to participate but, in exchange, the IRS rewards participating companies with a steep discount off potential back taxes and penalties.

To participate in VCSP, a company:

  1. Must declare its intent to reclassify one or more independent contractors as employees;
  2. Must have consistently treated this class of workers as non-employees;
  3. Must have filed Forms 1099 for payments made to these employees; and
  4. Cannot be under a misclassification audit by the IRS, DOL, or a state government.

Benefits for participating companies include:

  1. Pay only 10 percent of the employment tax liability that would have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509(a) of the Internal Revenue Code. See VCSP FAQ 15, for information on how payment under the VCSP is calculated. Also see Instructions to Form 8952;
  2. No liability for any interest and penalties on the amount; and
  3. No IRS employment tax audit with respect to the worker classification of the workers being reclassified under the VCSP for prior years.

The settlement process requires companies to sign a closing agreement with the IRS.

Is this a good deal? It can be, but it depends on the overall circumstances. Some factors to consider before applying include: Continue reading →

04.03.17
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What is an ABC Test? (and why these tests are a problem)

abc

As we know, there are a variety of tests used to determine Independent Contractor vs. Employee, and the proper test varies depending of the law being applied.

Most of these tests are balancing tests. A variety of factors are considered, and no single factor is determinative.

ABC tests, however, are different. ABC tests start with a presumption that a contractor is an employee, then requires a company to prove each of three factors to protect a contractor’s status as a contractor.

ABC tests tend to apply only to state unemployment coverage laws and, less commonly, to
state workers’ compensation laws. Continue reading →

03.30.17
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Four Ways to Give Up Control and Protect Independent Contractor Status

run

Retaining control over how independent contractors do their work can sink an otherwise legitimate independent contractor relationship.

Fortunately, steps can almost always be taken to give up aspects of control that do not hurt the business case for using a contractor instead of an employee. Companies need to be thoughtful and proactive, though, in evaluating and modifying these relationships — before they are challenged in a misclassification claim.

Here are four aspects of control you may be able to relinquish in your relationships with independent contractors: Continue reading →

03.23.17
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Today’s Tip: Avoid Blurring Lines Between Independent Contractors and Employees

side-by-side

This mistake may seem obvious, but companies do it all the time.  When an independent contractor is performing the same work as employees, the contractor is likely to be deemed an employee.

Remember, the determination of whether someone is an independent contractor or an employee is made based on the facts of the relationship, not what the parties call it. If the facts are that a contractor is doing the same work, in the same location, with the same instructions, and under the same supervision as an employee, then the contractor is likely an employee and should be paid as an employee.

I am not suggesting there is any problem using staffing agency workers or temp-to-hire.  Those workers are being paid by the staffing agency as employees. That is, their paychecks show withholdings and deductions, and their pay is reported by the staffing agency on a W-2, not a 1099. These are employees of the staffing agency (and very possibly your joint employees, but that’s a separate issue).

The issue addressed in this post is the use of 1099 independent contractors to perform the same type of work as employees.  If the work performed by an employee is employment, then it is very hard to maintain the position that the same work being performed by a contractor is not employment.

Summary: Avoid assigning contractors to perform the same work as employees.  When individual contractors and employees work side-by-side doing the same thing, the likelihood of misclassification is high.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

03.16.17
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Contractors Gone Wild! Are You Covered?

independent contractor vs. employee thieves-2012538_1280When an employee embezzles money, a company may look for insurance coverage under a crime policy, for employee theft. When an independent contractor steals money, a general commercial liability may cover the loss. But when an independent contractor acts like an employee, performs services typical of an employee, then steals money — neither coverage may apply.

That’s the harsh lesson recently learned by an Indiana company. Telamon Corporation retained an independent contractor to provide services through a series of consulting agreements. Eventually, the company made her a Vice President (please don’t name your independent contractors “Vice Presidents,” then claim they are not employees!) and put her in charge of recovering old telecommunications equipment to sell it to salvagers. She had other ideas, however. She recovered the equipment and sold it to salvagers, but she kept the money for herself. $5.2 million of it.

That eventually landed her in prison, where she won free use of an orange jumpsuit for five years. I know, she could have afforded a blinged-out $5 million jumpsuit, but she took the free one from the state.

Telamon, meanwhile, tapped its insurers to try to recover the cash.

Continue reading →

03.13.17
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Independent Contractor vs. Employee, Hit List by Industry, 2016-2017

img_1044Are you on the hit list?

The highest concentration of independent contractor misclassification lawsuits during the past 12 months seem to be in these areas:

  • Agricultural workers
  • Beauty consultants (sales)
  • Cable installers
  • Car services (passengers, ride-hailing services)
  • Computer programmers
  • Construction workers
  • Consultants (various industries)
  • Couriers
  • Delivery drivers (food, goods, freight)
  • Exotic dancers (strippers)
  • Freelance writer/reporters/other journalism
  • Information technology workers
  • Installers (cabinets, appliances, windows, furniture)
  • Insurance sales representatives
  • Janitorial franchise owners (individuals)
  • Maintainance workers
  • Newspaper carriers
  • Performers (actors, cheerleaders, wrestlers)
  • Physicians
  • Property inspection services
  • Repair technicians
  • Sales representatives
  • Travel agents
  • Truck drivers
  • Yoga instructors

This list should not in any way suggest that the categories of workers in this list should be employees. That determination will depend on the facts in any given situation. All of these types of workers, however, have been plaintiffs in recent lawsuits alleging that they were misclassified as independent contractors and should have been deemed employees.

Companies who retain these types of workers as independent contractors should take proactive steps to evaluate the facts in these relationships, particularly under the variety of federal and state law tests that may apply. Companies should also remember that because different tests apply to different laws, workers may be properly classified as independent contractors under some laws and some tests, but may be deemed employees under other laws and other tests.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

03.06.17
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D.C. Court Doesn’t Fall for NLRB’s Lollipop Trick, Deems FedEx Drivers Independent Contractors

img_1042Act I, Scene 1

Location: Anywhere, USA

Boy: Can I have a red lollipop?

Mom: No, we’re eating dinner in half an hour.

Boy: (eats blue lollipop)

Mom: What are you doing? I said no!

Boy: I only asked about the red lollipop.

Too cute by half, right? Mom is no fool and easily sees through the simple trick. The boy is grounded.

Act I, Scene 2

Location:  D.C. Court of Appeals

NLRB: These FedEx drivers in Massachusetts are employees, not independent contractors.

D.C. Circuit (2009): No, they’re independent contractors.

NLRB: Ok, Connecticut then. The FedEx drivers in Connecticut are employees, not independent contractors.

D.C. Circuit (2017): Are you kidding me? We already ruled they are independent contractors.

NLRB: Last time I only asked about the drivers in Massachusetts.

Continue reading →

02.28.17
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Tip of the Day: Beware of the Million Dollar Unemployment Claim

money-finance-wealth-currency-68148

If your former contractor files for unemployment, pay attention!

When a former employee files for unemployment, it hardly matters to the business whether the individual gets unemployment coverage. Unless the individual had voluntarily quit, benefits are usually allowed. No big deal.

When an independent contractor files for unemployment, however, beware. Unemployment insurance coverage is available only to employees, not to independent contractors. For a contractor to obtain coverage, the state must first determine that the contractor was an employee.

This determination can have far-reaching economic consequences to the business, extending well beyond the individual contractor.

First, if your contractor was misclassified and is deemed an employee, you were not paying into the state unemployment insurance pool for that contractor — or for all contractors who are similarly situated. The state wants your money and may issue back assessments (and penalties and interest) for having failed to pay into the system — not just for that individual but for all other individual contractors who performed the same type of work.

Back assessments can stretch back years and can add up quickly, particularly for businesses that retain a large number of individual contractors.

Second, the impact of a misclassification finding can quickly snowball beyond the land of unemployment insurance.

Continue reading →

02.23.17
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Sticks & Stones: What Not to Call Your Independent Contractors

sticks-and-stones-names-independent-contractor

“Sticks and stones can break my bones, but names will never hurt me.” Au contraire. That old adage may have rang true on the playground — or more likely, it probably got you beat up if you actually said it on the playground — but it does not ring true when speaking  about your independent contractors. Words matter. A lot.

Remember, any court or agency evaluating whether your independent contractor relationship is properly classified (and is not employment) will look to the facts. The facts include whether the parties refer to the relationship in ways that resemble employment. Avoid using terms that sound like employment.

Here are 14 things not to say about your independent contractors: Continue reading →

02.20.17
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Boom? Is the California Supreme Court About to Blow Up the Test for Independent Contractor Relationships?

california-independent-contractor-dynamex-boomThe California Supreme Court may be about to rewrite the test for Who Is My Employee? under California wage and hour law.  [Note 4/30/18: It just happened. Read more here.]

Independent contractor relationships that have stood the test of time may be in jeopardy.  And I don’t mean the (mildly?) entertaining Alex Trebek kind of Jeopardy. We’re talking real economic upheaval and uncertainty — worse than Schwarzenegger taking over Celebrity Apprentice.

Here’s the issue: Continue reading →