Archive for the ‘unemployment Insurance’ Tag

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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State Unemployment Insurance in 2011 – Reduced Benefits and Eligibility Restrictions

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Recent changes to Unemployment Insurance (UI) transpired during a time when many Americans depend on it as their primary source of income. The current economic environment has caused states to reform UI. This financial reform serves to restore solvency to UI due to the influx of  participants.  

A report by the National Employment Law Project, a national advocacy organization for employment rights of lower-wage workers, indicated ten states enacted stricter unemployment legislation in 2011. Notable changes include  a reduction in the average check amount, implementation of budget cuts to unemployment benefits, and instatment of stringent UI eligibility requirements. According to the report, six states shortened the maximum duration of UI to less than 26 weeks (which has been the standard term for 50 years). This regulation decreases the amount of weeks Individuals can receive extended benefits. Additionally, many states have strengthened regulations governing work search and drug testing requirements. 

Below is a summary of benefit reductions and eligibility restrictions for the various states.  Source:  Unraveling the Unemployment Insurance Lifeline: Responding to Insolvency, States Begin Reducing Benefits and Restricting Eligibility in 2011

Arkansas

Reduced Workers’ Unemployment Insurance (UI) Benefits:

  • New claimants can receive Workers’ UI benefits for a maximum duration of 25 weeks. Effective March 03, 2011
  • Minimum and maximum benefit amounts will be reduced to $81 and $451 respectively to wages earned. Effective July 01, 2012

 Eligibility Restrictions for Unemployed Workers:

  • The amount of wages a worker must have to qualify for UI benefits was increased from 27 to 35 times the weekly benefit amount .
  • For a worker to re-qualify in a subsequent benefit year, he or she must also have earned eight times the weekly benefit amount (up from three times) since the beginning of the previous benefit year.
  • A record of negligence along with progressive discipline is sufficient proof of intentional poor work performance and can lead to disqualification.
Florida

Reduced Workers’ Unemployment Insurance (UI) Benefits:

Effective January 2012:

  • Unemployment rate will be based on a sliding scale. As unemployment falls, the number of weeks for expected benefits also decrease.

Eligibility Restrictions for Unemployed Workers:

Effective August 1, 2011:

  • The requirement that misconduct requires“willful and wanton” action in order to disqualify was changed to requiring only a “conscious disregard” of the employer’s interests.
  • The definition of misconduct now includes misconduct outside of the workplace.
  • A claimant must provide the state with detailed information regarding contact with at least five prospective employers or the date on which he or she accessed services at a one-stop career center each week.
  • Claimants are required to complete a state agency–approved online skills assessment to maintain benefit eligibility.
  • Workers who receive severance pay or who are incarcerated may no longer receive benefits.
  • Parties can use hearsay evidence in appeal hearings to support a finding of fact by an Appeals Referee in certain circumstances
Illinois

 Reduced Workers’ Unemployment Insurance (UI) Benefits:

Effective January 2012:

  • Maximum duration of Workers’ UI benefits will be reduced from 26 weeks to 25.
Indiana

 Reduced Workers’ Unemployment Insurance (UI) Benefits:

Effective July 1, 2012

  • Weekly amounts of all the new claims on or after July 1, 2012 will be based on all four quarters in the worker’s base period rather than on the highest quarter of earnings.
  • Average weekly benefits are expected to drop from $283 to an estimated $220.

 Eligibility Restrictions for Unemployed Workers:

Effective July 01, 2011:

  • If a prospective employer withdraws an offer because the worker refuses to take a drug test or tests positive for drugs, it is assumed that the employee refused suitable work
Michigan

Reduced Workers’ Unemployment Insurance (UI) Benefits:

Effective January 15, 2012: 

  • Workers’ UI benefits will be reduced from 26 to 20 weeks
Missouri

Reduced Workers’ Unemployment Insurance (UI) Benefits:

Effective April 13, 2011:

  • Workers’ UI benefits were reduced from 26 to 20 weeks.

 Eligibility Restrictions for Unemployed Workers:

  • Claimant will not be eligible for a waiting-week credit or benefits in any week that they acquired an outstanding penalty due to an overpayment of benefits.
Pennsylvania

Eligibility Restrictions for Unemployed Workers:

  • Increase in the weekly qualifying wages from $50 to $100, beginning in 2013, and to 16 times the minimum wage beginning in 2015.
  • Workers with less than 18 weeks of qualifying wages (referred to as “credit weeks”) will be disqualified, beginning in 2015
  • Number of weeks in which workers collect benefits may not exceed the number of credit weeks; currently, workers with at least 18 credit weeks may receive up to 26 weeks of benefits.
  • The minimum weekly benefit will increase from $35 to $70, beginning in 2013.
Rhode Island

 Reduced Workers’ Unemployment Insurance (UI) Benefits:

Effective July 01, 2012:

  • Percentage used to calculate benefits each year will decrease from 67 percent to 57.5 percent.
  • Average weekly benefit amount will decrease from approximately $390 to $298.
  • Cap on maximum benefits will be reduced from 36 percent to 33 percent of base period wages.

 Eligibility Restrictions for Unemployed Workers:

Effective July 2012:

  • Stricter disqualification period for workers who refuse suitable work, voluntarily quit without good cause, or are discharged for misconduct- claimants will be required to work at least eight weeks, and earn the weekly benefit rate in each week.
  • Workers who receive severance pay may not receive UI benefits for up to 26 weeks.
South Carolina

Reduced Workers’ Unemployment Insurance (UI) Benefits:

Effective June 14, 2011:

  • Claimants are now eligible for 20 weeks of UI benefits instead of 26 weeks.

 Eligibility Restrictions for Unemployed Workers:

Effective January 1, 2012:

  • Seasonal workers will not receive benefits during the off-season if there is a reasonable assurance of work at the beginning of the next season.
Wisconsin

 Reduced Workers’ Unemployment Insurance (UI) Benefits:

Effective January 01, 2012:

  • Workers must wait one full week before receiving their first benefit check, despite meeting all of the eligibility requirements in this period, resulting in a loss of one week’s benefits.

 Eligibility Restrictions for Unemployed Workers:

Effective January 2012:

  • If a prospective employer withdraws an offer because the worker refuses to take a drug test or tests positive for drugs, it is assumed that the employee refused suitable work.