Recently in labor Category

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.

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.

The Employee Misclassification Prevention act of 2008 will make it more difficult for employers to improperly classify their employees as Independent Contractors. Looking for labor cost reductions or trying to avoid expensive staffing company mark-ups? Whatever the reason, you do not want to be caught hiring a regular employee on as an IC. While trying to cut your payroll costs, this money saving technique may just turn out to be a very costly move for your company.

According to the New York Law Journal, in an informative and well written article last week, the stakes are higher than ever and the shell game has ended.  This noteworthy article provides a year in review of the topic and references several important events surrounding the issue.

The new act is strongly supported by the teamsters  (roughly 1.4 million of them) and is sponsored by Democratic Reps. Rob Andrews of New Jersey, Lynn Woolsey of California, Mike Michaud of Maine and George Miller of California

Another update unfolds in the FedEx driver misclassification saga as shareholders take matters into their own hands and file suit against the FedEx board of directors. The plaintiff, Plumbers and Pipefitters Local 51 Pension Fund, alleges FedEx Ground unnecessarily exposed the company to damages through their questionable hiring practices.

The company was initially fined $319 million by the IRS for the 2002 tax year en lieu of classifying their delivery drivers as Independent Contractors while treating them as they were traditional W2 employees. However, after all is said and done, the company potentially may face liability and backtaxes totaling upwards of $2 billion dollars.

A spokesman for the company dismissed the union's lawsuit, calling it frivolous and without merit.  Yet, FedEx is currently fighting lawsuits in 30+ states as the result of this dangerous business model. FedEx still refuses to change how it engages these workers and continues to fight sinking more money into the tax dollar battle that has not enjoyed much success.

To date, stocks continue to sink as FedEx continues the battle and the IRS digs their heels in.