Archive for December 2011

Employee or Independent Contractor: Employer Guidelines

Are you finding it difficult to differentiate between employees and independent contractors? Well accurately defining a worker’s classification status may be a more serious issue than you might have anticipated. The U.S. Department of Labor (DOL) released the 2012 proposed budget, which emphasized a strong focus on identifying employers who misclassify workers as independent contractors versus employees. The DOL requested an additional $46 million to support a multi-agency initiative with the Wage and Hour Division (WHD), the Office of Federal Contract Compliance Claims (OFCCP) and the Occupational Safety and Health Administration (OSHA) to combat employee misclassification. In recent years, the DOL has “cracked-down” on employers for intentionally misclassifying employees as a means to escape payment of employment taxes, overtime compensation, and benefits.

 An employee is an individual, who is employed by one employer that provides training and control on how duties are performed. However, independent contractors operate under their own business name and may employ other workers to work under their direction. When a worker is classified as an employee, the employer is responsible for paying payroll taxes and overtime compensation, as well as complying with Wage and Hour law requirements such as providing meal periods and rest breaks and reimbursing workers for business expenses. Additionally, employers must cover employees under their worker’s compensation insurance, and are liable for payment of unemployment insurance, disability insurance and social security.

There is no universal system to differentiate between employees and independent contractors.

The DOL recommends using the “Economic Realities” Test. Defining factors are based on :
  • Degree of control in regards to the way work is done and the nature of control
  • Opportunities for profit or loss
  • Investment in the facilities and equipment of the business
  • Permanency or length of relationship with business
  • Degree of skill need to perform their job
  • Impact work performed has on scope of business
IRS uses the common law test known as the “Right-to-Control” Test
  • Level of instruction
  • Amount of training
  • Degree of business integration
  • Extent of personal services
  • Control of assistants
  • Continuity of relationship
  • Flexibility of schedule
  • Demands for full-time work
  • Need for on-site services
  • Sequence of work
  • Requirements for reports
  • Method of payment
  • Payment of business or travel expenses
  • Provision of tools and materials
  • Investment in facilities
  • Realization of profit or loss
  • Work for multiple companies
 Consequences of Misclassification
  • Misclassification of an Employee – If the employer mistakenly classifies an employee as an independent contractor, the employee can recover back pay, liquidated damages and attorney’s fees. According to the Fair Labor Standard Act (FLSA), employers are required to pay employees at least minimum wage (currently $7.25) for each hour worked. Employees must receive overtime compensation for all hours worked exceeding 40 hours in a workweek, at a minimum of one and a half times the regular pay rate. Employees have up to two years to seek recovery of back pay or three years if there is proof of willful FLSA violation by the employer.
  • Misclassification of an Independent Contractor– Employers could encounter financial consequences if the worker is classified as an employee instead of independent contractor. Employers could be paying unnecessary income tax, Federal Insurance Contribution Act (FICA) tax and Federal Unemployment Tax (FUTA) as well as overtime compensation and excessive benefit charges.
HR Best Practices
  • Perform a Classification Audit – A well executed classification audit will reveal gap areas that can potentially lead to costly legal disputes and government fines. Classification audits also serve as good faith evidence for compliance with FLSA.
  • Use IRS Form in case of Confusion in Determining the Status – When the status of a worker is unclear, employers are encouraged to complete IRS Form SS-8  and submit the form to the Internal Revenue Service (IRS). The IRS will review the facts and circumstances and officially determine the worker’s status. This form may be filed by either the business or the worker.
  • Seek External Resources – It may be best to seek the assistance of legal counsel or consult an HR outsourcing provider if  classification of  an employee’s status becomes too complex.
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New Poster Requirements for 2012

Employers, are you prepared for 2012? During 2011, the Department of Labor (DOL) introduced several new poster requirements effective January 1, 2012. Additionally, several states issued legislation altering state posters pertaining to benefits, minimum wage and safety regulations.

 Workplace posters  inform employees and employers of their rights and responsibilities. Employers must post mandatory workplace posters in areas clearly visible to the majority of their employees (i.e., break rooms, hallway, and entrances/exits).

 

Federal

  • NLRB- Employee’s Right to Unionize  (effective April 30, 2012 *Second delay in implementation*)

State

All state posters listed below must be updated by January 1, 2012. 

  • Arizona – Minimum Wage and ADOSH (Safety and Health)
  • California: San Francisco – Minimum Wage
  • Colorado – Minimum Wage
  • Connecticut – Paid Sick Leave
  • Florida – Minimum Wage
  • Illinois –  Workers’ Compensation
  • Montana – Minimum Wage 
  • Maine –  Child Labor notice and Minimum Wage
  • New Jersey – Recordkeeping Obligations for wages, benefits, and taxes
  • New Hampshire – Minimum Wage
  • Nevada – Fair Employment and Discrimination Notice
  • Oklahoma – Workers’ Compensation
  • Ohio – Minimum Wage
  • Oregon – Minimum Wage and FMLA
  • Utah – Unemployment Insurance
  • Vermont – Minimum Wage
  • Washington – Minimum Wage

Impact of Wage Garnishments on Employers

Have you received an increase in wage garnishment orders for your employees? Well you’re not alone. Due to the current economy, many Americans are falling behind on loan, child support and credit card payments. Creditors are turning to wage garnishments as a means to collect payments on delinquent loans. A New York Times article entitled Pay Garnishment Rise as Debtors Fall Behind illustrates the growth in wage garnishments during the recession. According to the article, wage garnishments increased up to 121% in Phoenix, AZ, the highest since 2005, and 55% in Atlanta, GA, the highest since 2004. In Cleveland, OH, garnishments surged 30% between 2008 and 2009. The increase in wage garnishments presents an additional responsibility for employers who receive garnishment orders for employees.

What is a Wage Garnishment?

A wage garnishment is a legal or equitable procedure through which some portion of an employee’s earnings is withheld by an employer for payment of debt. Most garnishments are mandated through court order. Types of garnishment include bankruptcy, child support, federal and state levies, and student loans.

Employer’s Responsibility

Employers are legally mandated to comply with garnishment orders. The burden falls on the employer to forward the payment for each pay period as indicated in the order until receiving a notice of release from the order. Depending on the type of garnishment, the employer may have to send a certification along with the payment as evidence.

Federal Laws 

Title III of the Consumer Credit Protection Act (CCPA) protects employees from termination due to garnishment of one debt. The CCPA prohibits an employer from terminating an employee whose earnings are subject to garnishment for one debt, regardless of the number of levies made or preceding the collection of that debt. According to the CCPA, employers are allowed to discharge an employee if they receive two or more separate garnishments. Employer penalties for violation of termination restrictions include a fine up to $1,000 and/or imprisonment for up to one year.

Additionally, the CCPA provides that the amount of pay subject to garnishments is based on the employee’s disposable earnings. Disposable earnings are defined as the employee’s remaining funds after federal, state, and local taxes, and Unemployment Insurance are deducted. Deductions for garnishment orders must be completed before deductions for voluntary wage assignments, union dues, health and life insurance, contributions to charitable causes, purchase of saving bonds, retirement plan contributions, payments for payroll advances and purchases of work-related merchandise can be taken out of an employee’s paycheck. The CCPA also indicates the maximum amount that can be garnished from an employee’s paycheck. Only 25% of the employee’s disposable income or an amount up to 30 times the federal minimum wage (currently $7.25) can be deducted. Exemptions to this rule include garnishments for unpaid tax debts, bankruptcy court orders, child or spousal support, or voluntary wage assignments. Specifically, up to 50 percent of an employee’s disposable earnings will be garnished for child support if the employee is supporting another spouse or child. If the employee is not supporting a “second” family, their wages can be garnished up to 60%. An additional five% may be garnished for support payments.

However, depending on the state, the maximum garnishment amount may be considerably higher compared to CCPA requirements. If discrepancies exist between state law and CCP requirements, the employer should observe the law resulting in the smallest garnishment. View the wage garnishment by state for information on state requirements.

Protection of CCPA

CCPA protects all employees receiving personal earnings including wages, salaries, commissions, bonuses, or other income from pension or retirement programs. Tips are not considered as earnings under the CCPA thus are not protected by this law.

Leadership Tips for HR Pros

So what approaches should individuals take to become world-class leaders in the world of Human Resources? CEO, Henry Hardin, provides  leadership advice to help advance  your career.  

Click on the  link to view article: http://hrstrategiesblog.com/features/

Posted December 5, 2011 by scicompanies in Leadership