The California law SB 459 is effective January 1st 2012. In short, a company may be fined an additional $5,000 to $25,000 for the willful misclassification of 1099 or Independent Contractors. For employers it is a good time to ensure the policies for engaging Independent Contracts are in line with the law and standardized across your organization.
Does anyone utilize professional resume writers or coaches anymore? With a large pool of unemployed and qualified workers, it seems like a main factor in securing a new job is standing out to the hiring manager(s). Not to complicate the process, but now there are peer reviews, resumes, virtual and video resumes, personal/professional networking referrals, VMS applicant tracking tools, old fashioned job boards, now top that off with social media and networking profiles.
Where are hiring companies looking to find candidates? How are they locating candidates? How can hiring managers possibly sift through and make sense of all the information that is available for each candidate?
A simple answer is, hiring managers are not sifting through the massive amounts of information to find the best fit for company culture and the specific job. We are approaching the point of information overload and emerging is a potentially new tool. Talent and performance management software or Software-as-a-Service SaaS.(Cornerstone OnDemand, Halogen Software, Plateau Systems, Taleo, SuccessFactors, SumTotal Systems, etc.)
While this software is customizable; the main functions are used to manage and track various goals, metrics, and almost any measurable aspects of workers in an organization. In a sense these tools build a historical snapshot for any metric the user wishes to track. These metrics come complete with software analysis, peer reviews, and senior management performance reviews. The talent and performance management software not only tracks what is being measured, but also allows for training programs and progress reports on each aspect needed to be improved or learned/re-learned.
Thinking forward, why not have a worker profile in place of a resume? This could track all of a worker’s main attributes, downfalls, progress, skills, and historical performance right down to the amount of time spent keying in a phone number to place a call.
It does take all types, and I would imagine most companies will use recruiters in the same manner, but why not use this new HR and talent management software? After-all, aren’t some of the functions this software performs conducted by recruiting firms?
If you are in the hunt for a job, then it would be most beneficial to use a variant of all the mediums available when applying for a job. Even picking up the phone. It’s still not to late to sell yourself as a viable candidate before we may potentially have to defend ourselves from our talent management profile.
Last year the House of Representatives and the Senate introduced two proposals directed at 1099 (Independent Contractor) classification. The legislation, which is backed by the White House, targets current grey areas with Independent Contractor classification, enforcement, and penalties. The following are overviews of the two Acts.
The Fair Playing Field Act of 2010 introduced by both the House of Representatives and the Senate on September 15, 2010.
The goal of the Act is to level the playing field for companies who abide by the laws for classifying Independent Contractors (ICs) and those companies who use loopholes to mis-classify workers and avoid paying taxes and providing benefits to misclassified workers.
The Act will provide clearer guidelines on the classification criteria and allow for the IRS to enforce these guidelines. The current loopholes, which allow businesses to “intentionally” mis-classify certain workers as ICs, will be closed . Below are three of the Act’s main bullet points:
- Allow the Secretary of the Treasury to issue regulations, guidance, and the final say on proper employment status (W2 vs 1099).
- Provide support to the IRS for enforcing the Act.
- Eliminate companies’ currently reduced penalty for failing to withhold income tax for misclassified workers. The loopholes currently allow employers to treat workers as ICs as long as the company documents and uses consistent classification reasoning.
The Employee Misclassification Prevention Act introduced by the House of Representatives (H.R. 5107) and the Senate (S. 3254) on April 22, 2010.
This Act would amend the Fair Labor Standards Act in the following manner:
- Enforce strict record-keeping of companies’ ICs and classification policies.
- Subject companies to a fine of $1,100 to $5,000 per employee who is deemed misclassified.
- Allow for misclassified workers to recoup double the violations for minimum wage and overtime pay damages.
- Make it unlawful to retaliate against non-employees who enact their rights under the Act.
- Mandate a notice to each employee hired which includes the new hire’s classification status and the appropriate labor laws (W2 vs 1099).
In December 2010, the IRS released information on the 2011 payroll tax grid. The main change to take note of is a 2.0% tax decrease for Social Security (the employee portion). For 2011 the employee rate will be 4.2%; however, the employer portion remains unchanged at 6.20%.
Limits for Social Security and Federal Unemployment is unchanged from the 2010 limits of $106,800 (SS) and $7,000 (FUTA).
“Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.”
With changing labor costs, requirements, and companies fearing the unknown future increases in employment costs; many employers see the utilization of 1099s or independent contractors as a method to control human capital spend. However, many employers misclassify workers as 1099s when in fact they are W-2 status workers. This misclassification has been well documented since Vizcaino v. Microsoft Corp in 1999 and the $97 million settlement (FedEx 2007: $319 million IRS fine and it’s estimated that the ongoing 63 cases against FedEx could cost over $1 billion).http://www.mbopartners.com/blog/fedex-may-be-in-for-over-billion-in-misclassification-case.html Article on 1099 classification http://library.findlaw.com/2000/Feb/1/127759.html
Another area which is relatively unexamined and overshadowed by 1099 misclassification is the status/classification of W-2 workers as exempt from overtime pay and the Fair Labor Standards Act (FLSA). An increase in unemployment numbers typically fuels employment, unpaid wages, overtime, and many other labor disputes. These disputes may lead to the discovery of unlawful employment practices per state and federal labor laws.
Excerpt from the Orlando Business Journal article on August 11th 2010 entitled “ZeroChaos to pay $61,000 in back wages”.
-”The U.S. Department of Labor’s Wage & Hour Division has recovered $61,191 in back wages for 81 employees of APC Workforce Solutions, doing business as ZeroChaos.”
-”…the company [ZeroChaos] had erroneously classified several employees as exempt from the Fair Labor Standards Act…”
Employers should always check that their exempt employees pass both the salary level test and the duties/job description test before classifying and paying workers as exempt. Having a well documented process with archives of past hourly exempt and salary exempt job descriptions is another check to ensure compliance. The classification process and a job’s particular exemption status should be transparent and reviewed with the concerned employee(s) in order to avoid any confusion or future legal issues.