Mitigating Contingent Labor Risk Through Effective Compliance. Management. PeopleFluent John Moore Sr. Consultant

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1 Mitigating Contingent Labor Risk Through Effective Compliance Management PeopleFluent John Moore Sr. Consultant

2 Contingent Labor Risk Mitigating contingent labor risk through effective compliance management

Founded in 1997 20 years HCM experience Serving

30% of revenue reinvested into R & D Backed by

3 Founded in years HCM experience Serving 80% of the Fortune 100 5,200 customers and 6 million end users 196 countries / 26 languages / 20 currencies Scalable and secure SaaS model 30% of revenue reinvested into R & D Backed by a $1B venture capital fund End-to-end Talent Solution

4 Contingent labor ICs or 1099s Affordable Care Act Contingent Workers Rights Agenda Staffing suppliers Types of risks Mitigating risks

Impact of the Contingent Workforce Close the Talent Gap 76% 80% 40% of organizations use contingent labor to enhance their workforce and close talent gap Source: Aberdeen Research 2014 of large

5 Impact of the Contingent Workforce Close the Talent Gap 76% 80% 40% of organizations use contingent labor to enhance their workforce and close talent gap Source: Aberdeen Research 2014 of large corporations plan to substantially increase their use of a flexible workforce in coming year Source: Intuit Of contingent workers convert to permanent roles Source: Staffing Industry Analyst 50% Contingent Talent in the Workforce by 2020 Source: Gartner 2015

6 What is Contingent Labor? A contingent workforce is a labor pool whose members are hired by an organization on an on-demand basis. A contingent workforce consists of consultants, independent contractors and freelancers and other forms of temporary workers, who are not on the company's payroll because they are not full-time employees of the organization.

Once Upon a Time 1992 Lawsuit against Microsoft Class action from thousands of temp workers accusing Microsoft of denying them benefits Microsoft was doing what

7 Once Upon a Time 1992 Lawsuit against Microsoft Class action from thousands of temp workers accusing Microsoft of denying them benefits Microsoft was doing what everyone else was at the time hiring temporary workers, keeping them for a year or more, and not paying benefits 2000 Decision against Microsoft Microsoft paid out $97 million

8 Questions Why was MS using so many temporary workers? What did the IRS do? How did businesses react to the news?

9 What is an Independent Contractor or 1099? The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax. IRS Website, Oct 2017

10 Degree of Control and Independence Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job? Financial: Are the business aspects of the worker s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

11 No federal and state withholding No fringe benefits Why use Independent Contractors No health care No pension No worker s compensation No unemployment insurance No anti-discrimination

12 If an employer-employee relationship exists (regardless of what the relationship is called), they are not an independent contractor and their earnings are generally not subject to Self- Employment Tax. Why Should You Care? However, their earnings as an employee may be subject to FICA (Social Security tax and Medicare) and income tax withholding. If you have been paying someone as an independent contractor and they are not the IRS wants to talk to you.

13 Who s in Charge Here The DOL, the IRS, state government agencies and the courts construe independent contractor status narrowly and impose large penalties for misclassification. Depending on the employment law at issue, courts apply different tests to evaluate a worker's independent contractor status, and it may be possible to be an independent contractor under one test and an employee under another. For example, the test to determine independent contractor status under federal tax law is not the same as the test applied under the Fair Labor Standards Act (FLSA). Different tests may apply under state law.

14 Independent Contractors FedEx, Uber, recent NLRB decision IRS Independent Contractor Test to determine common law employer: Behavioral Control When, where, what they work on Financial Control Only income, profit or loss Type of Relationship Contract, permanency, services provided differ from company s focus

Winners and Losers FedEx - $228 million,

Britain, FL disagrees Postmates (Courier

75 million, drivers are employees Grubhub

Indiana Medical Lab Drivers are not ICs,

complained about IC status Congress Holds

15 Winners and Losers FedEx - $228 million, CA drivers are employees Uber CA, NY and Britain, FL disagrees Postmates (Courier service) - $8.75 million, drivers are employees Grubhub (Delivery service) Winner, driver deemed employee Condustrial (Staffing company) Vacation, holiday, sick leave $TBD Indiana Medical Lab Drivers are not ICs, $TBD, also cited for firing people who complained about IC status Congress Holds exploratory hearing on changes to labor and tax laws affecting the Gig economy

16 Independent Contractors DOL or state investigation All employees and ICs over a 3 year period Fines for failure to file W-2s (per form, per employee) Failure to withhold taxes fines plus back taxes Most investigations are the result of an independent contractors complaint or filing for unemployment

17 Independent Contractors IRS fines and penalties (on top of DOL fines) 20% of all wages paid 100% of FICA $1,000 per misclassified worker 1 year in prison if intentional misconduct Plus a fine of up to 35% of the total misclassified payroll A responsible person with authority over the financial affairs could be held personally liable for 100% of the unpaid taxes. IRS

18 Independent Contractors Have a third party act as your Agency of Record Testing for compliance Invoicing and payments Issuing 1099 statements Individual contracts should have specific statement of work (SOW) outlining deliverables Work should not be your company s core work

ACA Reporting Requirements The Affordable Care Act (ACA) requires: 95% of a large employer's "full time" employees and their dependents must be offered ACA-compliant health care coverage or the

19 ACA Reporting Requirements The Affordable Care Act (ACA) requires: 95% of a large employer's "full time" employees and their dependents must be offered ACA-compliant health care coverage or the employer risks paying a penalty An annual report to the IRS detailing all full-time and FTEs who have been offered the minimum essential coverage Includes contingent workers who may be considered common law employees and FTEs

20 ACA Reporting Requirements What are you reporting? FTEs contractors who work 30 hours a week 130 hours a month 1560 hours a year Types Full-time Part-time Variable hour Seasonal Does not include independent contractors!

21 ACA Reporting Requirements Tax penalties Fines Between $1,000 and $3,000 per misreported employee In certain situations the client may be required to pay a premium above the bill rate to cover the cost of insurance

22 ACA Reporting Requirements Contracts with suppliers should detail the requirements for healthcare coverage Use suppliers who offer healthcare insurance Require reporting data from your Suppliers Managed service providers Vendor Management System (VMS)

23 Contingent Workers Rights EEO ADA Age Discrimination in Employment Act Discrimination Sexual harassment Civil Rights FMLA OSHA FSLA

24 Contingent Workers Rights Orientation of contractors Explanation of relationships Communication lines Work site protocols Hours Dress Client functions they may or may not participate in Policies (Sexual harassment, discrimination, etc.)

25 Contingent Workers Rights Make sure your suppliers have an internal employment compliance program Have them provide an on-site or visiting manager Review their orientation program Meets or exceeds your internal policies and procedures Signed acknowledgement by the contractor

26 Contingent Workers Rights Contractor issues not related to the day-to-day work should be handled by the staffing company Communicate to your internal managers that contractors are protected, too Do not discriminate Do not create a hostile work environment

27 Working with Suppliers Supplier Responsibilities Proper employment checks (I-9, background, drug screening, etc.) Establishing pay rate and paying their employees Paying taxes Withholding taxes May provide benefits, retirement plan Assigning and reassigning jobs

28 Working with Suppliers Invalid or poor background checks and/or drug screens Contractors not getting paid Work stoppage or late projects Contractual terms not being followed because of multi-tiered contracting Quality issues Bankruptcy

29 Working with Suppliers Audits Specify background check adjudication guideline Quarterly Business Reviews (QBRs) with rankings SLAs for Managed Service Providers Limit subcontracting to one level Financial due diligence

30 Fair Labor Standards Act Covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek Nonexempt employees generally make less than $455 per week Exempt limits vary in certain states There are many exemptions for certain types of work executive, professional and administrative

31 Fair Labor Standards Act Review job descriptions Review the rates Work with suppliers on overtime policy for all of the positions Put it in your contract Audit

32 Summary Due diligence Screen suppliers Enforce contractually Audit Communicate your policies Educate your hiring managers

33 Thank You John Moore, CCWP

34 Evaluation How-to: Why? How? Your feedback drives SIG Event content By signing and submitting your evaluation, you are automatically entered into a prize drawing From the App 1. Select Sessions 2. Select Day 3. Select Session S14 4. Click on Clipboard Icon COMPLETE & SUBMIT EVAL

35 Session # 14 Mitigating Contingent Labor Risk Through Effective Compliance Management John Moore, CCWP PeopleFluent John.Moore@peoplefluent.com Download the App: sig.org/app Tweet: #SIGspring18

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