Recently in underground workforce Category
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!
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.
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?
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.
While researching an article I kept bumping into buzz words used heavily in the independent contractor compliance world. In addition to these buzz words I also discovered there are pages and pages filled with industry experts and their credentials with offers of amazing solutions to help employers avoid the land mines associated with usage of the independent contractor. Words like worthy co-employer, co-employment protection, legally engineered program, risk mitigation and employer of record just to name a few.
Industry Lingo:
http://www.answers.com/topic/free-lance-employment-independent-contractors?cat=biz-fin
Solicitations for employer company's looking for a solution provider to help answer questions like "who is after me and why should I care" or simply want to align themselves with a "worthy co-employer" need look no further. It seems the industry is chock full of qualified compliance providers who possess equal levels of experience, industry knowledge and have years of practical experience with helping hundreds of employers to reduce or eliminate its risk! Which solution is right for you?
Know your co-employers! Ask hard hitting questions prior to making your final selection for a compliance provider. Remember, aligning yourself with a "worthy co-employer" will save you time and money in the long run. Asking basic questions related to IC compliance and collection of the documentation as evidence of experience are the first steps in a very involved selection process of a provider. Start by asking baseline questions:
1. How many IC evaluations have you performed?
2. How do you remain current on relevant compliance issues, law and legislation?
3. Do you provide support in an audit with the IRS, EDD or other auditing agency?
4. Have you represented a client in a state or federal payroll audit or worker classification issue?
5. How many agency audits/ have you assisted clients with?
6. What were the results of the audit(s)?
7. Have you ever had a worker classification overturned by a government agency?
8. If so, what was the financial impact e.g., taxes, fines, penalties, etc?
9. What companies do you currently provide evaluation services for and how long have you been providing these services?
10. Can you provide references from your current clients on your compliance process or testimonials regarding your risk solution or audit experience?
