Misclassification of Employees

Transcription

1 Presented by: Robert J. Simandl, Esq. Simandl Law Group, S.C Swenson Drive, Suite 250 Waukesha, WI (262) Misclassification of Employees Booster Clubs Students Work study programs School store Vocational Training Programs for Special Needs Students Youth Athletic Camps Post-Employment Benefits 2 1

2 IRS believes that employers inappropriately classify employees as independent contractors to avoid payment of wages, taxes and benefits Increased enforcement 200 new IRS auditors 6,000 audits over next 3 years (public + private sector) 3 Consequences of misclassification Employment taxes and penalties Retroactive coverage under benefit plans 4 2

3 Common Law Factors: Skill required Source of instrumentalities and tools Location of the work Duration of the relationship between the parties Whether the employer has the right to assign additional projects to the worker The extent of the employer s discretion over when and how long to work The method of payment The worker s role in hiring and paying assistants Whether the work is part of the regular business of the employer The provision of employee benefits The tax treatment of the worker 5 IRS Analysis Right-to-control test The more control exercised by the employer, the more likely an employment relationship exists 3 main categories 6 3

4 Behavioral Control Degree of control business has over worker. If worker controls the method by which a project gets done, the relationship looks more like that of independent contractor. Did the employer retain right to control worker and details of how service was performed (regardless of whether employer exercised that right)? Behavioral Control Degree of instruction, as more detailed instruction is indicative of employer/employee relationship. Whether the worker is subject to an evaluation system (one that measures more than just end result such as, how was work performed). Whether business provides worker with training on how to do job. 8 4

5 Financial Control Whether or not employer has right to direct and control financial aspects of worker s job. Whether worker has ability to make additional profit if worker can control expenses and other efficiencies. 9 Financial Control Whether worker has made a significant financial investment in equipment. Whether worker is reimbursed for expenses. Whether worker has opportunity to increase profits or suffer losses. Whether worker s services are available to the market. The employer s method of payment to worker (i.e., flat-fee or hourly). 10 5

6 Relationship Examines whether certain components are present in type of relationship between two parties. Is there a written contract? Are benefits provided? What is permanency of relationship? Are services provided a key activity of business? 11 Occupational Health Consultants P/T Consultants Coaches Trainers HVAC Consultants IT Consultants it depends! 12 6

7 Generally refers to individuals who perform services for the employer under an agreement between the employer and another person or organization Workers provided by: Leasing Agency Temp Agency PEO Defined 414(n) of the Internal Revenue Code (n)(2) Internal Revenue Code any person who is not an employee of the recipient and who provides services to the recipient if: Services provided pursuant to an agreement between recipient and another Person has performed such services for the recipient on a substantially full-time basis for a period of at least 1 year; and Services are performed under the primary direction or control by the recipient 14 7

8 Agreement with Temp Agency Site Contact to address failures in performance; discipline; termination Protections: Hold Harmless Reinstatement Benefit Eligibility 15 After Vizcaino v. Microsoft Corp. plan sponsors started including anticipatory language to address misclassified workers Other provisions accepted by the courts: Excluding individuals employer did not classify as employees Excluding those paid a fee under a contract Excluding any person who agrees to perform services as an independent contractor Excluding any person considered by the employer to be providing services as an independent contractor Covering only those persons paid by salary Covering only persons covered under a particular Collective Bargaining Agreement 16 8

9 Department of Labor Health Benefits Security Enforcement Initiative IRS Focus Discrimination Benefits Available Distribution Options Deferral of Income Cash in Lieu of Options for Health Care Compliance with Section 125 of the Internal Revenue Code 17 Review accounts payable to identify individuals who have been paid for personal services. Evaluate services provided and scope of the relationship. Analyze services in relation to the control factors. Identify all post-employment benefits and review documentation to ensure: Benefits are provided on non-discriminatory basis Compliance with IRS rules Review employee benefit plans to ensure: Clearly define eligible employee Provisions to address misclassified employees 18 9

10 Conduct Compliance Evaluation Policies on Event Staffing Volunteers Student Employees Interns Consultants Fragmental District Employment Update documents for health & welfare and retirement benefit offerings May require reconfiguration of benefit terms Temp/Leased employee agreement review Employment/Assistance reconfiguration 19 Robert J. Simandl Simandl Law Group, S.C Swenson Drive Suite 250 Waukesha, WI (262)