EMPLOYER ALERT – DOL AND IRS CRACK DOWN ON INDEPENDENT CONTRACTOR VS EMPLOYEE CLASSIFICATIONS

The IRS and the Department of Labor (DOL) are working together conducting random audits of companies looking for workers who have been improperly classified as independent contractors instead of employees. In 2011, the DOL hired an additional 250 investigators to conduct audits.

The IRS goal is to raise additional tax dollars, since employers do not withhold income taxes or FICA from independent contractors. The DOL goal is to require companies to pay improperly classified workers back pay for all overtime that would have been due if they were classified as employees. The consequence can be economically disastrous for your business, in terms of back overtime, liquidated damages, penalties, and tax liability. In addition, the improper classification of workers as independent contractors instead of employees has implications in unemployment compensation and workers compensation.

One of the red flags to both agencies is an employer who reclassified a group of workers during the year, resulting in issuance of both a W-2 and a 1099 to the same worker for performing, basically, the same services. If your company has made a decision to reclassify workers as a cost-saving measure, make sure those workers can legitimately be hired as independent contractors under the law, or the cost-cutting effort may backfire.

Both the IRS and the DOL look at the following factors.

How closely do you supervise and instruct the worker? Workers who must comply with your instructions as to when, where, and how they work are more likely to be employees than independent contractors. It’s the difference between telling them what to do, and telling them how to do it.

Do you control the hours of work? Although there are situations when the work by its nature must be performed at a certain time or in a certain sequence, in general workers for whom you establish set hours of work are more likely employees. In contrast, independent contractors generally can set their own work hours. Also, an independent contractor usually doesn’t work for you full-time, although there are exceptions.

Do you provide training or did the worker obtain specialized knowledge from outside your business? The more training your workers receive from you, the more likely it is that they're employees. The underlying concept here is that independent contractors are supposed to know how to do their work and, thus, shouldn't require training from the purchasers of their services.

Where does the worker fit in your organization? The more important the worker’s services are to your business's success, the more likely it is that they're employees.

Does the worker need to perform the services personally? Workers who must personally perform the services for which you're paying are more likely employees. In contrast, independent contractors usually have the right to substitute other people's services for their own in fulfilling their contracts. Also, workers who are not in charge of hiring, supervising, and paying their own assistants are more likely employees.

Is the worker performing a specific project with an expected end-date, or do they provide continuing services? Workers who perform work for you for significant periods of time or at recurring intervals are more likely employees. Someone brought onboard for a particular project is more likely to be an independent contractor.

Where is the work performed? Workers who work at your premises or at a place you designate are more likely employees. In contrast, independent contractors usually have their own place of business where they can do their work for you.

Is the worker paid by the hour or by the job? Although there are exceptions, most independent contractors are paid by the job, not by the hour.

Who pays for expenses? Workers whose business and travel expenses are paid by the company are more likely employees. In contrast, independent contractors are usually expected to cover their own overhead expenses, as they factor it into their total charge as a cost of doing business.

Are you providing the tools and equipment? Workers whose tools, materials, and other equipment you furnish are more likely employees. Independent contractors, by contrast, usually have their own tools and equipment.

Does the worker have an investment in his or her business and the opportunity for profit or loss? The greater the worker’s investment in the facilities and equipment they use in performing their services, the more likely it is that they're independent contractors. Similarly, the greater the risk the worker takes of either making a profit of suffering a loss in rendering their services, the more likely it is that they're independent contractors.

Do they work for more than one client? The more businesses for which your workers perform services at the same time, the more likely it is that they're independent contractors. Workers who hold their services out to the general public (for example, through business cards, advertisements, and promotional items) are more likely independent contractors. By contrast, an individual who works exclusively for your company is more likely an employee.

Are there restrictions on your right to fire the worker, or the worker’s right to quit? Workers whom you can fire at any time are more likely employees. In contrast, your right to terminate an independent contractor is generally limited by specific contract terms. Likewise, an independent contractor who has signed a contract to perform a specific project for your company will be in breach of contract if they abandon the project. An employee, however, is generally free to resign at any time.

Remember, no single one of these factors is determinative. The DOL and the IRS look at the combination of factors to determine whether the relationship is an employment relationship or an independent contractor relationship. How these factors are weighed can also vary based upon the specific type of business or industry.

IN THE NEWS – FEDERAL COURT RULES SEVERE OBESITY PROTECTED UNDER ADA

Firing an employee because they are severely overweight violates the Americans With Disabilities Act Amendment Act of 2009 (“the ADAAA”), according to a decision by a federal district court in Louisiana on December 6, 2011, denying an employer’s motion for summary judgment. The EEOC brought the case on behalf of Lisa Harrison, an employee who weighed 400 lbs when she was hired and weighed 527 lbs when she was fired, allegedly because her employer thought her excessive weight limited her ability to perform her job.

This is one of only a few court cases to tackle this issue since the ADA was amended in 2009, expanding the definition of an impairment that constitutes a disability. Under the new regulations, the definition of impairment does not include weight that is within a “normal range” unless it is the result of a physiological disorder. The EEOC (which investigates employment discrimination claims), states in its compliance manual for employers that although “being overweight, in and of itself, is not generally an impairment, . . . severe obesity, which has been defined as body weight more than 100% over the norm, is clearly an impairment.” The EEOC has also noted that other recognized disabilities, such as diabetes, hypertension or thyroid disorders, often go hand-in-hand with obesity.

Recently, the EEOC filed another obesity case in federal court in Texas against BAE Systems, Inc., alleging that the company fired employee Ronald Kratz, II, from his job as a material handler because he was morbidly obese. No ruling has been entered yet in that case.

It seems clear, however, that we can expect a growing number of obesity discrimination cases to be filed under the ADAAA. Some cases will involve individuals who clearly fit the definition of severe obesity. Whether the law applies in other cases, where the employee is simply overweight, will hinge on whether or not the employee’s weight is a result of an underlying physiological disorder. And still others will involve “perceived disability” – the law also protects individuals who, although they are not actually disabled, are discriminated against by their employer because their employer regarded them as having a disability. Accordingly, if a supervisor assumes that an overweight person is substantially limited in the ability to perform their job and discriminates against the employee on that basis, your company could be liable under the ADAAA regardless of whether the employee’s weight problem actually was severe enough to qualify as a disability.

More than one-third (33.8%) of Americans are obese, according to a study released by the Center for Disease Control (“CDC”) this year. And the number has been increasing steadily over the past 20 years. See http://www.cdc.gov/obesity/data/trends.html. The CDC measures obesity using height and weight to calculate a person’s body mass index (“BMI”). An adult with a BMI over 25 is considered overweight. If their BMI is 30 or higher they are considered obese. For example, an individual who is 5’9” and weighs 169 lbs. is overweight, according to the CDC. And if they weight 203 lbs. or more, they are obese. See http://www.cdc.gov/obesity/defining.html.

What does this mean for your business? It means roughly one-third of your workforce (and one-third of your job applicants) fall into the definition of obese. Those individuals may or may not be actually considered disabled under the ADAAA. But remember – even if they are not severely obese, they still may be protected under one of two other ADAAA qualifiers: (1) if their excessive weight is a result of a physiological disorder (not something you’ll be inquiring about during a job interview); or (2) if you perceive them to have a weight-based disability.

The bottom line: although weight is not a “protected class” like race, sex, age, national origin and religion under Title VII, it is being increasingly recognized by the courts as a disability under the ADAAA, a law which prohibits discrimination against individuals based on their disability. And the EEOC has made it abundantly clear that it views obesity as the new frontier for enforcement.

The best practice is to make sure all hiring and supervisory personnel in your organization are instructed not to make any employment decisions based on an individual’s weight or any stereotypes about overweight workers. Of course, employees must be able to perform the actual physical requirements of the job, but you should steer clear of making assumptions about an individual’s ability based on obesity. And employee requests for reasonable accommodations based on weight should be taken seriously.

EMPLOYER ALERT – FLORIDA MINIMUM WAGE INCREASES JANUARY 1

Effective January 1, 2012, Florida's minimum wage for non-tipped employees will increase to $7.67 an hour, a 4.9 percent increase from the $7.31 an hour minimum for 2011, according to an announcement by the Florida Department of Economic Opportunity. Wages for tipped employees will increase to $4.65 an hour.

This increase is based on the increase of the federal Consumer Price Index for urban wage workers in the southeastern United States.

In accordance with a 2004 constitutional amendment, Florida automatically raises the minimum wage rates based on the CPI. The federal minimum wage (currently $7.25 an hour) cannot be raised except by an act of Congress.

Florida employers must pay the higher, Florida minimum wage rate.

EMPLOYER ALERT – FACEBOOK FIRINGS COULD PROMPT LEGAL ACTION

Companies who fire employees for making negative comments about their jobs on a social media site could end up in hot water with the NLRB – even if the company’s employees are not unionized.

The National Labor Relations Board (“NLRB”) enforces the National Labor Relations Act, a federal law pertaining primarily to union activity, which has been around since the 1930s. In the past, courts have held that, to a limited extent, this law also protects non-union employees, in areas such as the right to have another employee present during an employee disciplinary meeting (these are called “Weingarten Rights”), and the protection of “concerted activity” – i.e. the right of employees to meet and discuss issues such as wages, benefits and workplace safety, and to approach management to discuss those issues.

Recently, the term “concerted activity” has been applied to social network postings by employees, and civil complaints have been filed and are pending before the NLRB against companies that fired employees for positing certain comments. Not all comments are protected – they have to fall within traditional definitions of concerted activity, qualifying as a discussion between employees regarding protected activities. A recent article appearing in the Chicago Tribune provides details and insights into this evolving issue. See: http://www.chicagotribune.com/business/breaking/chi-workers-fired-over-facebook-twitter-posts-turn-to-1935-labor-law-20111202,0,6526315.story

The best approach is to review your current HR policies to ensure that they do not prohibit protected “concerted activity” by employees, and obtain legal advice on this issue before you terminate an employee based on their use of social media to air complaints about a supervisor or other workplace issues.

EMPLOYER ALERT – CHANGES IN UNEMPLOYMENT LAW

Florida’s Unemployment Compensation Law now has a broader definition of misconduct which will result in more employees being held ineligible for benefits based on the reason for their termination. As an employer, you need to be familiar with this change so that you can adjust your HR policies accordingly, and make an informed decision whether to contest a former employee’s application for benefits.

In general, an individual is entitled to benefits if they are laid off, terminated without cause, fired for poor performance, or resign with “good cause attributable to the employer” (i.e. if conditions at work are so bad that any reasonable person would feel they had no alternative but to resign). Individuals are ineligible for benefits if they are terminated for misconduct. Conduct which results in termination “for cause” under a company’s internal policies, however, does not always equate to conduct that is considered “misconduct” under the unemployment compensation law. That definition has now been expanded to include conduct that would not previously have resulted in a denial of benefits.

Under the new law, misconduct is defined as any action that demonstrates conscious disregard of an employer’s interests and is found to be a deliberate disregard or violation of reasonable standards of behavior, and may include activities that did not occur at the workplace or during working hours. This change broadens misconduct and makes it easier for an employer to deny benefits. Misconduct now includes violation of an employer’s policy that affects behavior outside the workplace (such as a rule prohibiting employees from making negative statements about the company on an employee’s personal facebook page).

The best practice is to review your current policies, and make sure you are providing written warnings for violations that would qualify as misconduct if repeated.

Other changes in the law, which primarily affect the procedures for claimants seeking benefits, include the following:

• Benefit Payments: New claims must be paid by either the Florida Unemployment Compensation Debit Card or by direct deposit to the Claimant’s bank account (i.e. paper checks will no longer be used to pay benefits).

• Online Filing and Certification of Weeks: All claims must now be filed electronically, and continuing claims must be updated electronically. The unemployment hotline is still available to answer questions about filings.
• Work Search: Claimants are required on a weekly basis to contact five potential employers and provide this information via the Internet during their bi-weekly certification for benefits. You can use the Employ Florida Marketplace website (employflorida.com) to search thousands of postings and apply for jobs. If you are unable to make at least five employment contacts in a week, meeting with a representative at a local One-Stop Career Center for reemployment services can satisfy the requirement for that week.
• Skills Review: Claimants must now complete an initial skills review over the Internet. The result of the review will be used by local One-Stop Career Centers to assist claimants with job searches.
• Severance Pay: If a claimant’s severance pay per week is equal to or greater than the claimant’s weekly benefit amount, the claimant is not entitled to benefits for that week. Severance pay does not impact the total amount of benefits that can be paid on the claim.
• Duration of Benefits: Effective January 1, 2012, The duration of benefits adjusts from the current maximum of 26 weeks to a range from 12 to 23 weeks, based upon the average unemployment rate in Florida for the third calendar quarter of the previous year. For example, the maximum number of weeks for 2012 will be based on the average unemployment rate in Florida for July, August and September 2011. When the average unemployment rate is 5 percent or less, the maximum duration of benefits will be 12 weeks. For each half-percent increase in the average unemployment, an additional week will be added to the calculation of the benefit duration beginning January 1 of the following calendar year. Should the average unemployment rate reach 10.5 percent or higher, a maximum of 23 weeks would be payable on a claim established during the following calendar year.

EMPLOYER ALERT - BEFORE YOU HIT SEND

Technology means you can be on top of business activities 24/7, and so can your employees. But stop and think before you send that after hours email or text. Unless your employee is properly classified as exempt from overtime pay under the Fair Labor Standards Act, the time that employee spends reading and responding to your email or text is compensable work time. And if they are already putting in a 40-hour week, then it's overtime.

There has been a recent growth in wage and hour claims arising from off-premises work done by employees. Similar problems arise when employees are able to log into their work computer remotely - you as the employer are responsible for keeping a record of all hours worked by nonexempt employees. The FLSA has strict guidelines regarding which employees may be classified as exempt; you can't solve this problem simply by giving an employee a title and paying them a salary.

Other concerns: If the employee checks email on their smart phone or even responds to text messages in the morning before leaving for the office, when does their compensable work day actually begin?

The best practice is to have clear policies on when it is - and isn't - acceptable for employees to work outside of normal business hours. And be sure to enforce them.

IN THE NEWS – THE BUCK STOPS HERE ON HIRING

One way to avoid claims of discrimination in hiring is to use an independent contractor or recruiter to screen and interview potential employees, right? Wrong! In a decision rendered September 10, 2009, a federal court of appeals in New York ruled that an apartment complex could be held liable for violations of the Age Discrimination in Employment Act (“the ADEA”) when an independent contractor told an applicant he was “too old” for the job showing apartments. Because the apartment complex delegated the hiring process to a third party, the apartment complex could be held liable for its “agent’s” conduct, even if it had no knowledge that the discriminatory hiring practices were occurring.

The court pointed out that this ruling only applies if the outside firm or agent is hiring applicants to work directly for the employer. You will not be held liable if an independent contractor hired to perform services for your company discriminates against its own employees.

If you do decide to use an outside firm or agent to assist you in screening applicants for a position in your company, however, you should make certain they are following EEO guidelines