The Independent Contractor Dodge: Yes, the Crackdown is Coming

I’ve heard about two independent contractor dodges in the last two days — both with high visibility.

One was on the Op-Ed page of The New York Times, the other via a news release from the U.S. Department of Labor. You don’t have to read the tea leaves to realize that independent contractor status is a hot issue once again.

The New York Times Op-Ed page editors select timely topics that have news value. Some may call this combo “media hype,” but you can rarely apply the label to The New York Times Op-Ed page and have it stick. Especially since this article is not just an opinion piece, it covers federal lawsuits and a bill in Congress.

If you’re not familiar with these details, read along.

Have you audited your practices lately?

The Op-Ed is called Victims of Misclassification by Marjorie Elizabeth Wood. It leads with the testimony at a Senate hearing from a Michigan construction worker whose employer, “changed his status from employee to independent contractor, [while] the conditions of his work stayed the same.”

Ms. Wood points out that, “Fifteen (15) states have now teamed up with the Department of Labor and the Internal Revenue Service to reduce misclassification through information sharing and joint investigations.” This is at the encouragement of the Treasury Department’s Inspector General.

In other words, be careful out there. If you haven’t audited your practices recently, 2014 would be a good time to do it.

I don’t expect many Compensation Cafers to have egregious practices like the Hibachi Grill & Supreme Buffet, named in the December 17 DOL news release. They called their employees independent contractors; didn’t pay them minimum wage or overtime; and didn’t even maintain employee records (and now they owe $2 million).

But I bet you have some grey area practice, too.

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For example, I know of an individual who has been a contract worker on a project for Big Pharma for over a year. (As he has been, on and off, for almost a decade.) His employer was just going to log him out for a while (again) when they asked him to work on a project in Europe.

Some of the work is being done on site, some of it is in the U.S. I don’t know what his current classification is or pay agreement, but I’m sure this complicated combo rings a bell with many of you. And with global mobility being added to the contingent workforce mix in so many companies, it’s hard to keep track of your company’s alignment with the regulations.

Government is focusing on “payroll fraud”

But it would be prudent to get serious about it soon, so you can clearly explain what you are doing, if you have to.

From the Nov. 14, 2013, WorldatWork DC Employment Law Update:

During Tuesday’s Senate Subcommittee hearing – Payroll Fraud: Targeting Bad Actors Hurting Workers and Businesses – Senator Robert P. Casey, Jr. (D-PA) announced that he, along with Senators Tom Harkin (IA) and Sherrod Brown (D-OH), had that day introduced the Payroll Fraud Protection Act of 2013 (S. 1687), a bill that would “hold employers accountable” for independent contractor misclassification. This hearing occurred just days after the Department of Labor (DOL) sent its proposed Worker Classification Survey to the Office of Management and Budget (OMB) for review and approval.

The proposed survey will likely provide the groundwork for the future “right-to-know” rule that would amend an employer’s record-keeping requirements under the Fair Labor Standards Act (FLSA) to provide employees with greater information about their employment status …”

“Payroll Fraud.” See what I mean?

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.

Margaret O'Hanlon is founder and principal of re:Think Consulting. She has decades of experience teaming up with clients to ensure great HR ideas deliver valuable business results. She has worked with early-phase and Fortune 500 companies, as well as universities, non-profits and local firms. Before she founded re:Think Consulting, Margaret was an Principal in Total Rewards Communications with Towers Perrin. Contact her at mohanlon@rethinkconsulting.com.

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