Independent Contractor Compliance Blog

It is very common for a company to engage qualified independent contractors (ICs) who:

• Are true experts
• Have other clients
• Market their services to gain new clients
• Work for a fixed price for a completed job
• Pay their own expenses
• Work for several clients (sometimes even competitors) at the same time

However, many times these ICs become misclassified employees. This transition happens when both parties underestimate how the working environment (or the way the day-to-day operations are managed) can affect a relationship.

Common mistakes include:

• The IC is paid by the hour instead of a fixed price for a finished product or series of milestones. Someone who is paid for a finished job, regardless of the hours or expense required to complete that job, is more likely to qualify as an independent contractor. When someone is paid for the time worked, they appear to be an employee.
• The company wants to manage the consultant, not the deliverables. If the contract has clearly established expectations and you have engaged a true IC, you should step back and receive the service. Trying to control how this expert will perform often changes how the relationship is perceived. Ideally, the end result is what you contracted for, not his/her time.
• The company, not the IC, provides the equipment, supplies, and workspace. Yes, sometimes an IC must work within the physical structure of the client’s business to perform the work; however this arrangement closely resembles an employer-employee relationship.

Other behaviors that may transform the status of your IC into a misclassified employee:

• ICs should not attend your regular employee staff meetings
• ICs should not have supervisory control over your regular employees
• Managers in your company should not give detailed supervision to the IC (work times, control sequence of work, etc.)
• You should not assign work to the IC that is traditionally done by employees in your company

None of these factors alone will make your IC a misclassified employee. However, each factor will move the IC closer to a misclassification status.

Consultants and contractors naturally want to please their clients.

Top consultants are often happy to work whatever hours and days requested by the client. They willingly perform miscellaneous tasks that were not originally in the contract. They want to fit into the company culture and therefore agree to attend staff meetings or company events. They go above and beyond just meeting the contractual obligations because a quality contractor wants a happy client.

This desire to satisfy the client is admirable; the problem arises when these actions change the relationship into a misclassified employee.

It is important to monitor the relationship continuously to ensure it still qualifies for IC status.

An IC who is qualified for independent contractor status at the beginning of the project may not continue to qualify a few months later if the working relationship has changed. It is important that an expert determines the classification status at the outset of the project and at regular intervals thereafter. Since this is a time-consuming and complex task, many companies choose to outsource compliance monitoring to the experts at Collabrus.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation, you should obtain the opinion of a qualified expert.

The American Dream is founded on the belief that an individual can build a business with determination and hard work, starting with nothing except an idea or a skill.  Being your own boss — an independent contractor — is at the heart of this dream. Successful independent contractors eventually grow their small business into a larger company employing others, creating jobs and securing a good life for those who also believe in hard work and determination.  This principle is the very foundation of what makes America great. However, the road to achieving The American Dream has a few potholes.

The IRS targets tax returns of self-employed individuals for audits.
According to the IRS, last year more than 41 million individuals filed tax returns as self-employed individuals. Collectively, these independent contractors reported more than one trillion dollars in gross income.

The IRS acknowledges they look for taxpayers who file a Schedule C – and self-employed individuals almost always file a Schedule C.  A review can range from a single item mail inquiry to a full-blown income tax audit.

The IRS cites two major justifications for targeting Schedule C filings.

1. Exaggerated business expenses claimed by many IC’s: 
   The IRS states that claimed expenses are often significantly overstated and therefore become a source for additional tax assessments during an audit. 
   Common examples include:
   • Home office space not used exclusively for business
   • Vehicle mileage for personal use
   • Subcontractor expenses
   • Travel, meals, and entertainment expenses
   • Line 27 “Other Expenses”
2. Potentially misclassified workers
   If the IRS determines that the self-employed individual did not qualify for independent contractor status and should have been classified as an employee, the individual will not be authorized to claim expenses on a Schedule C.  These expenses will be disallowed as will any contributions the individual made to a pre-tax retirement plan they may have established.

If the individual gets audited, so could the companies for which they worked.
The IRS may also use a disqualification of an independent contractor status for an individual as a backdoor audit lead into your company. If the IRS finds that a misclassified worker provided services exclusively for a single company, oftentimes the IRS will audit that company. The greater the estimated revenue an audit could produce, the greater the possibility the company will be audited.

Companies that utilize large numbers of independent consultants are at a higher risk of being selected for a “backdoor audit.” Once the IRS selects a company for this audit, the inquiry may extend to any source the auditor believes could produce additional revenue.  In other words, the audit may not be limited to just payroll taxes.

In the end, both a company and the individual are exposed to an increased audit risk when the worker files a Schedule C. This is just one of many triggers for an IRS audit for not only an individual but for an entire company. And, in most cases, an IRS audit will prompt a state audit as well.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation, you should obtain the opinion of a qualified expert.

If your company is audited by a tax agency and you appeal their decision, typically the case will then be decided by an Administrative Law Judge (ALJ).  There are fewer strict requirements to be an ALJ than for a full-judicial judge in either a civil court or a federal court.  This is important to know in the event that an ALJ presides over your employee classification hearing.

This past May, there was a case about a federal administrative law judge (ALJ) who oversees Social Security Disability cases. The authority and duties between disability ALJs and those who decide independent contractor classification cases are very similar. According to the front page story of The Wall Street Journal:

“In the fiscal year that ended in September 2010, the administrative law judge, who sits in the impoverished intersection of West Virginia, Kentucky and Ohio, decided 1,284 cases and awarded benefits in all but four. For the first six months of fiscal 2011, Mr. Daugherty (has) approved payments in every one of his 729 decisions, according to the Social Security Administration.”

“The judge has maintained his near-perfect record despite years of complaints from other judges and staff members. They say he awards benefits too generously and takes cases from other judges without their permission.”

It is not uncommon to encounter perceptions of bias in employee classification hearings
ALJs are expected to listen objectively to both the employer’s and the worker’s arguments, review the related documents, and apply their knowledge of the law when making a “judgment’ as to whether the consultant was properly classified as an independent contractor. 

The problem is everyone’s “judgment” varies; as does the depth of their knowledge on any particular subject.  Some ALJs are more likely to rule independent contractor and some are more likely to rule misclassified employee.  Two judges can hear the same facts and rule with different decisions.

Employee misclassification cases are a part-time job for many ALJs
In most administrative systems, the ALJ also presides over benefit cases for unemployment insurance claims, disability insurance claims, worker’s compensation claims and other types of benefit cases.  This can make them sensitive to the “claimant’s point of view.”  Also, cases determining employee status are a part-time job for most ALJs. Therefore, they do not have in-depth experience with this issue.  These factors combine to produce rulings that can be based on superficial knowledge, perhaps with some amount of bias.

What about appeal rights?
If you believe your company was issued an unfair decision by an ALJ judge, you may consider appealing it to a higher court. In some cases, you may have this option.

However, appealing to a higher court is a risky decision for a couple of reasons: 1) the record has already been set against you, which means you are now swimming against the legal tide, and 2) you are forced to fight your battle in a more formal and expensive arena, and these cases drag on and on, draining your company of resources and time.

The best time to “win your case” is before the consultant begins work 
Making the investment to ensure you properly qualify the project and the consultant for independent contractor status and properly document that decision before the project even starts is the best time to prevent a court ruling against your company. 

Expert qualification and documentation may prevent the auditor from ever knocking on your door because there will be no red flags to draw attention to your company.  How can you lose your case if you are never audited?

Alternatively, in the case of an audit, if you have expert qualifications, supporting documentation of your classifications of all of your independent contractors which you can provide upon request, you are in the best position to prevail.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation you should obtain the opinion of a qualified expert.

A recent survey by a commercial financial and retirement investment planning firm reported that as many as 64% of those over 55 are not prepared to retire in the traditional sense.  This is due mostly as a result of the recent financial market turmoil, however other factors play a role.

The report indicated that 77% of the participants between 55 and 64 would like to work during retirement.  The percentage of those over 65 wanting to continue to work after retirement was 56%. The report predicts that even after the market recovers, only a small portion of Baby Boomers will seek full retirement.  Many will opt to stay on the job, at least part-time.

Filling another workforce need
Many companies report having difficulty finding people with the exact skills, experience and work ethic required in today’s highly competitive world market.  When Boomers retire, they often leave a gap in a company’s talent base, compounding the problem.

Many companies are discovering that Boomers can be highly skilled and productive workers to fill this gap.  Businesses often pursue retirees to return, at least part-time, to complete projects, train replacements, and fill in until the right person can be hired.  Companies sometimes hire a competitor’s retired Boomer.  The real challenge becomes how to engage retirees properly, and staying compliant.

Bringing Boomers back as independent contractors
Some companies choose to bring back their retirees as independent contractors.  They believe the contractor classification avoids the conflict of hiring an employee who is drawing benefits from the company’s retirement program.  It also allows the former full-time employee to work a shorter schedule, giving them more time for family or other personal pursuits.  It can be a good fit for all parties, if processed properly.

Contractors must be independent contractors in more ways than just title
Often, returning Boomers are performing essentially the same work duties, under similar working relationships, as they did when they were employees.  Such a relationship most likely will not qualify for independent contractor status by an enforcement agency like the IRS or California’s EDD.  It can also set a company up for potential liabilities associated with injuries on the job or co-employment lawsuits.

Companies like Collabrus have an established Returning Retiree Program that allows you to properly engage your retirees as a true independent contractor, following all state and federal requirements for contractor classification, reporting, and tracking.  They also monitor and document the engagement, so later, if you’re challenged, you can prove your IC was classified properly.

If the retiree cannot legitimately return under independent contractor status, Collabrus will engage your Boomer as an employee.  Doing this eliminates the conflict of hiring back your own retired employees while they are drawing benefits from your pension fund and protects you against misclassification issues.  In addition, they offer a full range of employee benefits and perks for these workers.

When retirees are reengaged properly, you can enjoy the contributions of these skilled, experienced, proven workers without putting your company at risk. 

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation you should obtain the opinion of a qualified expert.

An auditor looking over your books and records will look for familiar patterns for businesses that misclassify workers.  For example, an individual receiving a check charged to “contract labor” or “outside services” every two weeks for months on end is a red flag of a possible salary paid to a misclassified worker.

An auditor may ask questions about the red flag, such as, “What does this person do for you?”

If the consultant performs work that’s in the regular line of the company’s business, a second red flag begins to wave.  For example, a Loan Officer, screening and approving loans, is working in the direct line of a bank’s business and is most likely an employee of the bank.  If the Loan Officer is classified as an independent contractor (IC), the auditor sees that as a red flag.

Business cards or other business logos.

Many companies provide their consultants with a business card or give them access to the company stationary, logos, or other brand resources.  Once the consultant begins to use business cards with your business name, others begin to think of him as a representative of your business, which makes him look more like your employee.  An auditor (and people wanting to sue you) will assume someone who is supplied business cards, letterhead, wears your company logo on a shirt or a uniform, or who drives a vehicle with your brand name on the door is your employee.  It will become your problem to prove otherwise.

Another red flag: a variety of duties.

A consultant who is doing a variety of jobs may also look like an employee.  The more variety the greater the danger of the IC looking like your misclassified employee.

How about the job that goes on-and-on?

When you have an IC whose job goes on-and-on-and-on, it does not automatically mean the consultant is misclassified.  There are many examples of one company providing a service to another company, through a contractual relationship lasting many years, with no risk of misclassification.  However, this can quickly change if red flags begin to wave.

Some red flags for jobs that go on-and-on are:

• The IC becomes financially dependent on your projects—excluding other clients—to the point that if he loses your contract he has no income.
• The IC supervises your workers.
• The IC is assigned a cubicle, provided office supplies, equipment and office services.
• The IC attends regular staff meetings.
• The IC reports in regularly for various, or new, assignments.
• The IC performs other duties, as needed.

These red flags are clues to an auditor that you may be misclassifying consultants.

Some companies try to avoid misclassification red flags by:

• Having a “one year rule,” where no consultant can work longer than a year.  However, this will not protect you from misclassifying a consultant.  It is possible to have an employee who provides services for one hour then leaves.
• Drawing up new contracts every few months, giving the appearance of a new project, but the consultant is continuing in the same position, performing the same duties for an extended period of time.  An auditor will look past a series of contracts, and see essentially continuous employment.

There are many other factors.

These are only some of the red flags an auditor will look for when searching for misclassified employees.  An expert, like Collabrus, can identify your red flags and advise you how to lower them—helping you stay compliant when the auditors arrive.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation you should obtain the opinion of a qualified expert.

According to The Wall Street Journal, (“The Rise of the Temp Lawyer”, June 15, 2011), a new trend in labor law suits has sprung up from an unlikely source: “itinerant contract attorneys.”  These are typically recent graduates, who move from job-to-job, getting paid by the hour, largely to review documents for law firms and corporate clients.  This new brand of contingent worker is paid as little as $15 an hour, and is being referred to as the new “third tier of the legal world.”  According to the National Association for Law Placement, about 10% of all private practice jobs accepted by last year’s law school graduates were temporary.  This represents a significant increase from 5.4% temporary jobs in 2007.  Some of these new attorneys sue the law firms for which they work.

An employee by any other name…
These recent graduates of law school typically work 10 to 12 hours a day—sometimes during graveyard shifts.  They may sit silently in a big room, working at a computer monitor (provided by the firm), reading thousands of documents online. Their job is to quickly “code” each document according to its relevance in litigation or an investigation (instructed what to look for and how to document their findings).  Their work is critical in the pre-trial, discovery phase of litigation and in many investigations (work is integral to the law firm’s business).

Their “supervisors” discourage them from talking to each other and limit their breaks (control their work environment).  The computer systems they use (provided by the firm) counts each lawyer’s speed (production and supervisory control).

Many of the law firms erroneously consider these new attorneys to be independent contractors, exempt from labor laws. 

A misclassification is a misclassification.
According to The Wall Street Journal, “In the past year, at least two law firms have been sued over issues relating to work by contract attorneys.”

One lawsuit cited the law firm’s use of contract attorneys in a legal malpractice lawsuit and alleged that the law firm didn’t thoroughly review the work of the contract attorneys it hired (another direction and control issue) and overbilled the clients.

The second law suit, “Labaton Sucharow LLP was sued last year in federal court in Manhattan by a temp lawyer alleging the plaintiff firm violated federal labor laws by failing to pay overtime.  Labaton had argued the temp lawyer was exempt from overtime obligations…The case was settled.  Terms weren’t disclosed.”  The Journal quotes the Labaton spokeswoman as saying, “Our law firm was in compliance with federal and state laws governing overtime.”

Lawyers suing lawyers over labor violations.
According to The Wall Street Journal, “In 2004, Preston Gates & Ellis, now K&L Gates LLP, agreed to pay $700,000 to settle a certified class-action lawsuit filed on behalf of more than 300 lawyers, who were employed by the firm to review electronic records. The suit alleged that the firm acted improperly by not paying the employees time-and-a-half for overtime, or compensating them for rest breaks.”

Just being a lawyer does not guarantee someone is an expert in worker classification issues, as these law firms found out.  Don’t make the same mistake.  Be sure you are using a true expert with the experience and the background to do it right.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation, you should obtain the opinion of a qualified expert.

The IRS announced an increase in the optional standard mileage rates for the final six months of 2011.  Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011.  This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new rates are contained in IRS Announcement 2011-40.

Changing the mileage rates in mid-year is unusual.
The IRS normally updates the mileage rates once a year, announcing the new rate in the fall for the next calendar year.  The announcement was made by IRS Commissioner Doug Shulman, stating, “This year’s increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices…”

Employees are normally reimbursed for business mileage.
The 55.5% rate is used by most companies to reimburse employees who operate their personal automobile on the job and is the rate the IRS will allow a company to expense against its taxes.

Independent Contractors (ICs) ideally should pay their own mileage and other expenses.
In a common law employee versus IC model a true IC is responsible for his/her own expenses, including vehicle mileage and other travel costs.  Ideally, an IC is paid a flat fee for a finished job/deliverable and is responsible for all expenses, of any type, incurred to produce that final product.  So when you pay a consultant’s mileage expense (or reimburse them for supplies, equipment and other expenses) you have begun the slide down the slippery slope to misclassification.  Paying your consultant’s expenses makes them “look” more like an employee than an IC.  It is one of the factors looked at by the IRS, and others, when deciding if a consultant is misclassified or not.

No single factor will make the difference.
If you’re thinking this doesn’t make sense because it means everyone you know is misclassifying their consultants and contractors, remember, no single factor will decide the consultant’s status and each factor can be weighted differently depending on the profession and the circumstances of the project.  Reimbursement of mileage expense is just one of the factors in assessing worker classification status. If you’re not sure how to classify your workers, a third party company like Collabrus can provide the experts who can help you classify your workers appropriately, mitigating your co-employment risk.

According to current U.S. Census Bureau figures:

• 76 million persons were born in the “baby boom” years, from 1946 through 1964.
• In 2008, they began to reach age 62-retirement age for Social Security.
• In 2009, over 2.7 million people were added to the Social Security benefit roles.
• In 2012, it is anticipated that 10,000 more Americans will turn 65 every day.

Many of these “Boomers” are not retiring in the traditional sense.

It is becoming common for companies to turn to former successful employees, who have “retired,” as a source of contingent labor. 

There are numerous advantages to re-engaging “retired” workers:

• They are proven entities.
• They often have the ability to hit the ground running on projects-something rarely possible with new workers.
• They can act as mentors for the next generation.
• They can pass on their expertise.
• They know the history and story of the company.

Many companies opt to bring their “retirees” back as independent contractors (ICs).

Companies often reengage their retired employees as IC’s because bringing them back as employees may create several conflicts with both government and private retirement plan restrictions.  For example, the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code have several provisions that restrict the terms of employment for returning retired employees.  Because of these restrictions, some retirement plans have provisions where retirement benefits are suspended if the employee is re-employed.  This may meet with resistance from the retiree. Also, other employee programs such as health plan benefits can vary significantly between retirees and other workers, creating a conflict in coverage and possible co-employment problems down the line.

Companies often attempt to avoid these problems by re-engaging retirees as independent contractors.  However, this practice can lead to other traps.

There are dangers in directly hiring back your “retiree” as an IC.

Many times companies simply bring back their retired worker, place him/her in the same workstation, performing the same or similar duties, and classify them as an IC.  This is a guaranteed formula for misclassification conflicts such as tax audits and civil suits.

The Internal Revenue Service, U.S. Department of Labor and state enforcement agencies have computer profiling programs to red flag recently retired individuals who return to the same company as IC’s.  Government agencies commonly believe that someone who retires and returns to the same company as an IC, performing substantially the same or similar duties. He or she is probably a misclassified employee. This is true even if the retiree is working fewer hours than they did prior to retirement.

It’s really no secret the government’s motive is to collect more revenue.  These red flags are considered rich audit leads, potentially offering large tax assessments with penalties and interest.  In addition, when an agency investigates a single IC relationship, they will review all individuals providing services to the company classified as an IC.  This can open up a Pandora’s Box of misclassification woes and unplanned tax liabilities.

If you can’t rehire the retiree as an employee, and you’re asking to be audited if you bring them back as an IC, what is the answer?

The safest and many times most economical way to bring your high-end retirees back is through a third-party provider such as Collabrus.  As an Employer-of-Record, Collabrus assumes the employer relationship with the retiree who is performing the work under your direction at your company. This eliminates the potential conflicts inherent in reengaging retirees as independent contractors. All parties benefit; the retiree can work and continue to enjoy their retirement benefits, and the company can realize the advantages of working with retirees without risk.

Last year I wrote in the article Classic Misclassified Worker Scenario about a conversation with my neighbor’s daughter, who recently graduated from college and accepted a position as a freelance, independent contractor (IC) software engineer. I won’t mention the company’s name. Last year she was excited about her booming career. She’d anticipated the IC position would lead to a permanent job and intended to give the job everything she had.

Well, I saw her again this week and she was not quite as happy.

I asked, “Hey, how things doing?”

“Oh, OK…looking for work…again.”

“What happened to the job with XYZ Software?”

She sighed, “That job was just for six months. They dropped me when the project ended.”

She gave me some more details about how the project ended and how she was again looking for work, and then said, “I couldn’t find anything else in this economy and I really needed the money… I’ve already missed two payments on my car, so I made a claim for unemployment.”

I asked, “You were freelance weren’t you?”

“Yeah, but that wasn’t a problem. The claims rep explained all that to me, but then told me many times people think they’re IC’s but really aren’t and if I was misclassified as an IC I could still receive benefits, so I made the claim and they’re sending an auditor out to the company to get my claim approved…” She explained.

You really can’t blame her for the audit. The company utilizes dozens of freelancers. if she hadn’t made the claim, odds are some other freelancer would have.

The number one reason businesses are audited: former IC’s file for unemployment insurance (UI) benefits
Being audited by a state employment agency is not the end of the ordeal for a business. The state employment tax audit will often lead to an IRS audit (the IRS has an audit sharing agreement with most states). More often than not, the IRS will not just audit for misclassifications, but will survey for income tax issues at the same time. Also, the IRS shares information with the Department of Labor, so that single unemployment claim can become a growing snowball of government enforcement.

This company could be in for a rough time
When a tax agency investigates a single misclassified worker they typically will look for others at the same time.

Last year I predicted this company was in for a rough and expensive wakeup call, which is why I advise potential clients to engage an expert, like Collabrus, before this happens to them.

There are powerful economical, legal and political forces struggling to decide how prominent the use of independent contractors will be in the United States. The catalysts for this emerging battle are a sluggish world economy, increased international competition, and demographic shifts which are driving a talent shortage. Both sides are becoming more aggressive in the IC Wars, with the prize being the fate of how US Businesses will utilize IC’s in the future.

Who are the players in the IC Wars?

Fighting for Freedom: American Businesses and Independent Contractors.

American Businesses

Many times the right resource or expertise is not available within a company. But the need may only be temporary and to hire a high-end worker as a permanent employee would not be cost effective.

An independent contractor allows the business to engage an expert to complete the project without requiring a long term commitment. Also, properly using IC’s can save employer costs such as; unemployment, social security, Medicare, and employee fringe benefits.

Independent Contractors

Since the birth of this nation a cornerstone of private enterprise has been the freedom of individuals to work for themselves-to create their own business-to be their own bosses. Being an IC allows the freedom to pursue a dream, but there are also many other advantages:

• More freedom and autonomy doing the work.
• Tax deductions that employees do not receive.
• Pick and choose health and retirement benefit programs.
• Earn a higher level of income.
• Variety by working for different businesses.

Despite these benefits there are challengers who are working to greatly restrict, if not eliminate, independent contractors in the United States; such as, the Government, Unions, plaintiff’s attorneys and sometimes even the contractors themselves…

The Government

It is no secret that government is looking for more money and that politicians want tax agencies to collect more taxes. However, it is politically unpopular to just raise the tax rate, so they must be more circumspect and creative. One proven method has been to boost the enforcement of existing tax laws, known as “Leveling the Playing Field.”

Common statements made by politicians:

• “Misclassifying workers is unfair to other businesses attempting to compete while properly classifying their workers.”
• “Misclassifications contribute to the Tax Gap, and to the deficit.”
• “Misclassifying workers denies employees of their entitlements under the law…”

So the government assumes the mantle of the good guy by passing laws to create stronger enforcement tools and increasing penalties for not complying. It’s the political alternative to raising taxes.

The Unions

Businesses who utilize large numbers of independent contractors are a mortal enemy of unions. The reason is straight forward and simple: Independent contractors are not union members and do not pay union dues.

Take, for example, FedEx Ground home Delivery drivers in New York (No Union for FedEx Home Drivers, Court Rules – NYTimes.com) The United States Court of Appeals for the District of Columbia ruled the FedEx Ground home Delivery drivers were not eligible to join the union since they were considered IC’s. The union has indicated it would appeal to the US Supreme Court.

Plaintiffs-the General Public

Let’s say you engage an IC to redesign your company’s motif in your retail stores. While driving from store A to store B the IC has a traffic accident. A third party is seriously injured.

Enter the lawyers…Almost immediately the plaintiff’s attorney will include your company in the lawsuit, claiming the contractor was actually your misclassified employee, looking for the “deep pockets” in a settlement or judgment.

The Independent Contractor himself?

Believe it or not, this is possibly the most common source of misclassification challenges. Your former IC-the person who insisted on being classified as an IC when the job was being scoped-is now challenging that very classification. You show up at the hearing, or in court, and find your former IC sitting with the opposing council, helping them win the case against you. Why? Typically, they are making UI claims, Worker’s Comp claims, civil suits for overtime, stock options, retirement, health care, or other employee benefits. It happens every day, in every state, all across the country.

The stakes are high and if you plan to enter the IC Wars you need to be prepared.

Don’t let your company be a casualty in the IC Wars. Insure you have properly classified your contingent workers and independent contractors and can prove it when challenged. Most companies greatly underestimate the level of detail required to prevail in a misclassification legal battle. If you’re wondering about next steps, call Collabrus – we’d be happy to help!