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Seems everyone is stepping up to the FedEx cash machine for their fair share of the big dollar payouts guaranteed in this labor pool nightmare. Lawyers working on behalf of the misclassified home delivery drivers hit pay dirt today walking away with a whopping $14.4 million dollar judgment. A retired Superior Court Judge called upon to determine the additional compensation drivers would receive surprised everyone with a dollar amount much greater than expected.
Today's ruling means FedEx is not only on the hook for its unpaid employer payroll taxes, heavy fines and penalties but now must shell out huge dollars to cover out of pocket expenses to the drivers. Although FedEx insists these drivers are not regualr employees they must comply and reimburse the workers. Industry experts following the on going FedEx saga estimate total out of pocket costs for this employer improper worker classification could go as high as $1 billion dollars before it's all said and done.
Similar pending cases filed by other home delivery drivers across the nation both at the state and federal levels can only mean equally large payouts. As these cases are brought to closure you can believe we are guaranteed top notch case coverage and the large dollar awards will definitely make headline news.
Should FedEx continue shelling out these huge payouts one might begin to think this group could beat the Feds in jumpstarting the U.S. economy!
On Monday after the stock market posted its worst one-day percent decline in 21 years after the house rejects $700 billion dollar bailout plan and America held its breath waiting for the other shoe to drop.
Over the last 18 months America has endured more than what it would consider its fair share of financial hits. Subprime lenders criminal business practices with slash and burn interest rates and Wall Street driving the get away car has many ready to push the panic button. This type of questionable company business practices is old hat for many seasoned Americans but how are today's subprime loan sharks deceptive practices different from past white collar thieves? They were caught red handed.
With the economy at the brink of total collapse, employers dumping thousands of workers onto the unemployment rolls, homeowners walking away from over priced homes having learned they owe more than it's worth we have our pick of distractions. But for some its still business as usual shifting focus back to the day to day and we've got a business to run. Employers may believe government watchdogs are not paying attention and no one will notice if they veer off the compliance road just a little. WRONG! Just when you think it's okay to relax just a little state and federal auditors strike. They know unemployment benefits claims are up and there is no need to pretend it's just a random audit.
Independent contractors although not entitled to unemployment benefits are extremely motivated in times like these. What once was clearly a client/contractor agreement can quickly shift to an employment relationship if the payout is right and the stakes are high. When it's all said and done you picked up another headcount in addition to heavy fines and penalties while opening a 2nd audit door for yet another agency.
Words to the wise... stay the course, shore up any loose hiring practices and prepare to be audited!
Independent contractors have been around since the beginning of time. Throughout history man has hired workers to do a job with no strings attached or expectation of continued employment. The worker was hired, performed the services, received payment and moved on to the next job. This practice over time gained enormous popularity and on the surface a great solution to an age old worker shortage problem. The no strings attached practice provided both the employer and the worker temporary relationships currently referred to as "contingent workforce" a way of life for many. This transient labor pool includes independent contractors, temporary workers, leased workers, agency worker (payrolled worker) and other titles that do not include the traditional employer/employee relationship. According to the Government Accountability office (GAO) there are about 42 million contingent workers roughly 30 percent of the overall US workforce. A great solution for truly project based work and when used properly a win/win all the way around. But not everyone supports "pay as you go"" especially when it threatens a way of life for some.
Strong opinions of naysayers like Lynn Woolsey a representative of California who is quick to shift the entire blame to the employer and are a constant in the movement for change "The use of contract workers gives the employer a great advantage over the workers, says Woolsey. "We need to turn that around where workers actually receive their share of benefits for the amount of benefit they bring to a company." In her view the current model benefits only the employer and the worker is left to fend for themselves. The piece she doesn't understand is the employer is not always in the driver's seat and the worker often calls all the shots. Traditional employment arrangements are not high on a contracted workers list and those on the independent contractor track run from full time employment. Semi-retired or retired baby boomers and other one person shows want the flexibility to work when they want. If left up to Woolsey and other supporters of the death of the freelancer model the axe would fall tomorrow. Groups like the teamsters, politicians and union representatives would fill the stands at the gallows in support of doing away with non-traditional work arrangements. But the reality folks in the end these work practices will not go quietly and disappear but stay underground where business as a freelancer is booming!
But in spite of changes in the law to address non traditional workers the wheel of change moves slowly. Although lawmakers continue to push legislative change directed at the employer with incentives like stiff fines and penalties the 300 pound guerrilla in the room continues to go unnoticed. Until law makers apply similar pressure to the contractors and hold them equally accountable and the watch dogs will continue to chase their tails. Continuance of ongoing employer scrutiny, criticism of the staffing industry who only want to help ease worker shortages and failure to apply equal pressure to the other contracting party are reasons enough to give us pause. Is this really all about helping out the worker ensuring they receive a fair shake?
Proper treatment of workers, fair pay and benefits should be offered accordingly.
And remember it takes 2 to tango!
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?
