These desperate times call for desperate measures and Livermore city watchdogs are no exception. Local officials and the IRS teamed up to tag home based independent contractors and other small business owners for unpaid business licensure fees. It's no secret the state, federal and local governments are operating in the red and not likely to miss an opportunity to add a few dollars to empty collection plates. The size of the reward must be worth the chase if authorities were willing to wade through reams of tax data and other countless pieces of paper. If the tax man put forth this much effort to bring in nominal fees what lengths will they go to collect from large benefactors of this underground workforce?
So the next time that independent contractor you hired says "I don't need a business license" stop! Don't just take a claim of exemption check it out!
Thinking about handing over access to your customer database or perhaps employee data files to an outside contractor? You may want to take just a few moments to really think it through. With data theft on the rise and the number of cases where loaner laptops are lost or stolen it might be time for a change and STOP handing over the keys to the store.
Our increased dependency upon specialized contract labor often provided the same levels of access to highly sensitive resources and internal access and typically granted to employees only may be
Although not all independent contractors who provide services to you should be forced to undergo a lengthy background check, but at least secure the flow of sensitive information and employee accessibility. The real question here is should you let an outsider have access to internal databases and employee information? If your answer to this question is yes than how about this question; a stranger without a background check who is onsite, has access to your employees or not onsite but has access to your financial data or intellectual property. Would you be willing to share current hiring practices and background investigations check points with your customers? What about regular employees who have submitted to a series of rigorous testing and endured long waiting periods before they can even begin working? Most of you are most likely thinking absolutely not. data theft at Los Almos ends in sever punishment
Exercise caution when doling out your company's sensitive information to a third party. The dangers of providing access to sensitive internal resources to a contractor are real and illustrated in headlines every day. It is critical you reexamine your current levels of provisioning access granted to outsiders and that all individuals are screened regardless of employment status. Performing checks on everyone may not be a popular practice among contract labor but it is the right thing to do in order to protect employees and your customers. Individuals who have access to your building via an entry badge also have direct access to your employees. Perhaps you only grant contractor access to your network, databases or e-mail system only and they never physically come on site. Should they also be checked? Yes!
Everyone must submit to a background to ensure nothing is missed. After all it is the right thing to do for your employees and customers who automatically assume you've checked and your primary concern really ought to be their physical safety and data security.
Another employer business practice check includes independent contractors and small business owners. All employers can look forward to yet another test in the very near future. This news should come as no great surprise to employers and those following the daily business headlines.
A bill signed by President Bush earlier this month and goes into effect in 2011 is expected to generate $98 billion dollars in additional tax revenue over a 10 year period. The premise for the bill is to catch tax cheats utilizing on line payment services to cover up questionable unfair labor practices. Although not all transactions must be reported to the IRS under the new law in fact purchases or payments totaling less than $20,000 and not in scope offers little comfort to small business owners and those identified to mind the store. This new law will place yet another bull's eye on the backs of all employers and potentially add hidden costs for those identified to carry out the orders.
To catch a tax cheat
Third party payment processors like PayPal recently learned this bill is directed at them and will require additional checks as part of its on-line payment process. The bill comes complete with strict reporting requirements designed to alert the government of transactions inline with the guidelines outlined above. In addition to the actual reporting warm-up exercises prior to the actual payee bout may result in trying times for everyone. First assignment is to verify each Tax ID number for every business owner's transaction. Layered in are next steps in the event the company is unable to verify a number. Instructions are to withhold 28% of the payment until such time the number has been successfully verified. Imagine being on the other end of the phone or the recipients' follow up email.....
Roadblocks designed to catch those who have become adept at mudding the audit trails may suddenly become a trap for enforcers. These employers who tend to lean towards the spirit of the law instead of following the letter of the law diverting suspicion by hiding under an online shield will get over once again. Even when eventually caught in one of these safety checks they may simply chalk it up as just another hazard of doing business
Home based virtual staff seems to be the wave of the future for small business owners who want to sidestep the headaches and the expense of a traditional brick and mortar office.
Given the current economic downturn, employers everywhere are taking necessary steps to reduce costs, often starting with staff cuts forcing them to seek out temporary workers or independent contractors to help fill the void. Today's employers are entertaining all options that offer cost savings including those that address costs associated with a fulltime workforce. A highly successful offering with Canadian employers Virtual Pro is a huge hit in the U.S market since it was launched by StaffPro America in February. Employers who are looking for alternatives to the traditional staffing model have been very receptive to this new idea because of all the front end pluses. The model allows employers to gain access to a transient talent pool, work can be project based with no long term commitments and virtually no employer responsibilities that go along with traditional employment. It seems employers have embraced this concept and this could be a leg up on the competition for StaffPro.
Although StaffPro acknowledges the solution is still very much a traditional staffing firm model it is unique in that neither party bears the responsibility of the employer given the workers are "independent contractors" and "self employed". These individuals are responsible for adhering to the riggers associated with operating a business paying their own taxes, obtaining other clients, writing handling the contract and when the project is done neither the employer nor the staffing company has unemployment costs to worry about. Given this alternative worker model has been so successful in Canada StaffPro is optimistic they can repeat it in the U.S. A huge advantage for StaffPro it has no local competitors and it expects to boost its revenue by 19 percent this year if this endeavor is a hit.
A possible success factor for the Canadian operation maybe in the past revenue seeking agencies in Canada has not been as aggressive in its employer auditing efforts as the IRS in the U.S. However in the last 5 years numerous worker misclassification cases against employers have been tried and won and employer compliance continues to be a focus in Canada. In the U.S. employer workforce compliance has endured heavy scrutiny given it is at the forefront of political campaigns, on the lips of workers and numerous notable cases make the headlines on a daily basis. Now more than ever employers must ensure the programs and solutions they adopt are carefully scrutinized for potential risks to avoid the missteps of companies like FedEx and others. Working on a project basis from your home does not make an independent contractor. In any employee-independent contractor review, all information that provides evidence of the degree of control and the degree of independence will be scrutinized. Meeting the requirements set by both the state and federal government to be deemed self employed is no easy task. Specific worker types requiring heavy supervision, little or no specialized education or training and hourly payments is typically viewed as indicative of an employer/employee relationship. If the auditing agency feels the employer company has the right to control the relationship (whether they ever exercise the right or not) the mere fact that it exists is enough to reclassify a worker. Should the agency render a reclassification determination an employer must be named for payment of back taxes, fines and penalties assessed for this error in judgment.
The costs of worker misclassification can be financially devastating to small client companies possibly resulting in financial ruin. Employers looking to avoid the added costs associated with traditional staffing models must look at all aspects of the staffing model beyond the costs and real employer obligations. Take a peek under the hood and kick the tires before signing on that dotted line. Remember, just because you call them independent contractors doesn't make it so.
As early as 2005 through 2007, Blackwater was erroneously awarded 39 separate contracts slotted for small business owners. According to the SBA Blackwater may have misrepresented its worker population and actually did not meet the small business owner requirements outlined in SBA guidelines.
The façade came to light when House Committee on Oversight and Government Reform Chairman Rep. Henry Waxman became suspicious of the security firm and asked SBA to investigate the firm. On July 28 2008, Waxman went public with Blackwater's deceptive hiring irregularities and the agency that knew about it but did not take corrective action. Waxman stated "it appears the company misled contracting officials who in turn chose to ignore all of the warning signs. It is deplorable that no one ever looked out for the interests of the federal taxpayer." Although Blackwater is not accused of breaking any federal laws this case is far from closed as this article states.
In my opinion misappropriation of federal contract dollars earmarked for small business owners are small potatoes compared to a much larger employer hiring practices that teeters at a pandemic level. The mere fact personnel hired by Blackwater were brought on as independent contractors and not employees presents a whole slew of other headaches for the security firm and they have not heard the last from the Feds. With the recent passage of state and federal legislation designed to crack down on employers who intentionally misclassify workers the security firm will need to staff up with an army of lawyers.
The IRS and the states in which Blackwater is doing business in will dig in and undoubtedly be able to prove the workers are indeed misclassified. Their audit findings will yield hefty fines, steep penalties resulting in corporate punishment. Waxman's statement in addition to the Blackwater retort to the allegations will be used as evidence to prove willful and intentional worker misclassification. Perhaps the illegal "got" may not be worth it in the end.
With the talent crunch in full swing many employers including the state and federal government are taking on retirees to help ease the work load while they continue to search for full time employees. The issue at hand is not retirees reentering the workforce but former employees returning to work to perform the exact same job they had prior to exiting the workforce. States are cracking down on a practice termed "double dipping" where workers collect pension benefits in addition to them earning a salary with a current employer/former employer. It is estimated thousands of state and local workers retire, collect pension benefits and then keep working, more often doing the same job they retired from! Although perfectly legal in every state some think it's not fair and want something done about it.
While rehiring retirees may seem to be a great way to tap into an experienced labor pool it may just cost you more in the long run. Time, effort and higher compensation are just part of the overall costs of engaging former workers. When you factor in a staffing agency mark up or take another route and contract directly with the worker the costs jump up significantly. On top of the direct labor costs navigating the independent contractor landmines laden with heavy fines and penalties for misclassified worker can be financially devastating to a company.
Employment practices of this nature are often labeled tax schemes and front and center on the legal stage at all times with no real end in site. State Agencies are leading the charge in the war on independent contractors and employers who use them. The returning retiree more often than not falls into the misclassified independent contractor category. When you combine two very unpopular employers labor practices the bright line leading the auditors straight to your door gets even brighter. You may want to rethink who and how you staff your next job opening
Bottom line the real issues are tax dollars, desperation and nothing more. This bold move by the states to curb retiree usage especially independent contractors in the government sectors through legislation is another clear indication they intend to win this war. Talk about double dipping...
Homeland Security has more contractors than government employees who are so deeply ingrained in governmental functions potentially influencing decisions well outside the duties of a hired gun. A Senate Committee looking into the matter uncovered the justification for this hiring practice. The long standing practice of hiring contractors to fill open positions earmarked for W-2 employees has created a situation that is not easily rectified. The committee determined the department lacks in-house expertise and institutional knowledge and must rely on contractors to fill the needs of the department and issued a "strong urging" to DHS to change its hiring practices. The problem is so pervasive an overnight change is not possible. Robert Burton, Deputy Administrator of the Office of Federal Procurement Policy said "the question is, what rules will govern that relationship.
What?? Ask any private employer and they can quote the rules for hiring contractors and the pitfalls of improper worker classification. Compared to the hammers and large boons lowered on non-government employers who utilize the exact same hiring practices it seems very little has been done to influence change in governmental hiring practices. Company's in the private sector have endured years of harsh financial penalties, been threatened with 3rd degree felony charges, paid fines and penalties in the billion dollar range for misclassifying workers. Compared to a "strong urging" to fix the problem and a check for $39 million in procurement dollars to hire regular employees the punishment pales in comparison.
This milk toast approach towards DHS and other government entities from those who push employers to do the right thing by its own workers seems less than adequate. The message to ALL employers should be equal playing field for all. To fix the age old contract worker misclassification problem we must lead by example and not from the platform of do I say not as I do. Otherwise, how can we expect employers to take the pitfalls of worker classification seriously if those who do the policing are not adhering to the law?
News about a pending bill to stop worker misclassification continues to spread across the nation like wild fire. The bill heavily laden with strict employer requirements, added hiring red tape, severe consequences for those who get it wrong and get caught has many very nervous. The bill known as Employee Misclassification Prevention Act of 2008 (H.R. 611) is the latest attempt by the federal government to stop improper classification of workers as independent contractors and designed to plug the tax revenue drain associated with improper worker classification.
Should the bill pass employers will need to prepare for more than just a larger tax bill. Consequences outlined in the bill range from existing post audit back taxes with heavy penalties and fines, new class action lawsuits, wage and hour violations and a visit from the state auditor to boot! Employers have been sitting on the edge of their chair since the bill was first introduced in May 2008.
The bill includes rules for state auditing agencies by offering a huge incentive for states to step up its efforts to flush out misclassified workers. The incentive comes in the form of a new Department of Labor's (DOL) certification requiring states to prove the effectiveness of its audit programs and promises to be the catalyst the Feds need to drive more aggressive auditing campaigns at the state level.
The take away from all of this folks... the stakes are high and you the employer will not come out on the winning side. With a tax deficit of about $35 billion in uncollected tax revenues and the IRS is convinced a tax drain exists in the misclassification of workers this can only mean one thing. It will be even more difficult for an employer to prove itself innocent of any wrongful doing in any type of an audit.
The state of Michigan went public with the news that it has joined California, Pennsylvania and others along side the IRS in the fight against this underground workforce. Employers who intentionally misclassify workers to save money are being targeted. The IRS is leading the charge and hot on the heels of the misclassified independent contractors and the employers who use them. Michigan is not late to the party but in fact was the first of 29 states to sign a memorandum of understanding with the IRS outlining ways for the state and federal agencies to work together.
According to an unofficial report obtained by the Associated Press yesterday Michigan auditing officials discovered a staggering number of misclassified workers who were paid as independent contractors during an audit.
Although actual dollars in wages of the misclassified workers in the state of Michigan are unknown the Government Accountability Office reports that employee misclassification on the federal level accounted for the underpayment of an estimated $2.72 billion in Social Security taxes, unemployment insurance taxes and income tax and clearly Michigan has contributed to these numbers.
The weight of this scheme has negatively impacted everyone but the employers who got away with it as evidenced by the financial burden bourn by employers who are doing the right thing, workers on all sides and public sponsored programs that faded into the background due budget cuts. The broken independent contractor model is not unique to the state of Michigan but an actual pandemic across the nation. You can't open a newspaper, turn on the news or read my blog without hearing about a number of employer misclassification cases and they continue to stack up.
I think these types of headlines coupled with the lure of the potential revenue dollars as a direct result of huge fines and penalties will be reason enough for these states to maintain the chase. With the tax man pushing at the state and federal level keeping Michigan and the rest hopping may just be the ticket that moves the states in the red closer to the black.
Companies reporting to authorities about a rival's employment practices happen more often than you think!
According to Bloomberg, UPS may have played a role in prompting an investigation by state officials of FedEx's employment of 15,000 drivers as independent contractors.
Sour grapes, huge tax and benefits obligations for the 92,000 W-2 union drivers shelling out a hefty sum for the workers are just the tip of the iceberg. In the meantime FedEx's ground unit which accounts for about a fifth of the parent company's $38 billion in revenue bypasses these employer requirements claiming ground drivers are independent contractors and not employees. UPS claims this model is an unfair business practice and may have been the catalyst behind the tip off. Thanks UPS! http://www.aircargoworld.com/break_news/06252008d.htm
The courier business is not alone in the war on employers who misclassify workers as independent contractors. With 10.3 million people working as independent contractors and state and federal coiffeurs with record deficits, a bright line leading to a perceived tax revenue drain hole is drawn to companies that hire these workers. Targeted industry employers like Home Depot and Allstate Corp. are all too familiar with the aggressive pursuit by the auditing agencies.
The number of cases on the legal stage on any given day should be enough to make any employer sit up and take notice regardless of the industry in the line of fire.
