Employee vs Independent Contractor

IRS Announces Worker Classification Audit

The IRS recently announced that it will conduct 6,000 audits focused on whether businesses are properly classifying their workers as employees or independent contractors.  Employers should take the time to review their existing arrangements with independent contractors.  If an employer has classified an employee as an independent contractor and has no reasonable basis for doing so, they may be held liable for employment taxes for that worker.  In addition to this tax and potential penalties for employers who misclassify workers, employers may find that workers reclassified from independent contractor to employee are now seeking to claim benefits from the employer, such as health benefits and matching 401(k) contributions.

As a general rule, an individual is an independent contractor if the employer for whom the services are performed, has the right to control or direct only the result of the work and not the means and methods of accomplishing the result.

Technically speaking, the classification determination is made under a common-law test based on all the facts and circumstances.  Common law rules include three characteristics, which are used by the IRS to determine the relationship between businesses and workers: behavioral control, financial control, and the type of relationship.

If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, either the business or the worker may file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.  The IRS will review the facts and circumstances and determine the worker’s status.  This process can take up to six months; however, businesses that continually hire the same types of workers to perform particular services may want to consider filing the Form SS-8.

This is a major topic affecting entrepreneurs, start-ups, and small businesses.  Steiner Business Solutions will be addressing this in an upcoming Business Seminar.  Make sure you go to our website and look for the date.  You can register for any of our free seminars at www.steinerbusinesssolutions.com.

New Virginia Employment Laws Passed

Governor Kaine has signed the following employment-related legislation into law, effective July 1:

1.  Increased workers compensation tax to go to the Uninsured Employers Fund (UEF).  The tax will go from .25% to .5%.  This tax is paid by insurance companies (and self-insured employers), but employers should not be surprised if the increased expense to their insurance companies is passed on to them.

2.  There will be a new employment poster to add to the wall.  The Virginia Department of Social Services will provide a notice to employees about their possible eligibility for federal or state earned income tax credits.  The IRS already publishes a similar poster, but its use is voluntary.  The Virginia notice will not be voluntary.

3.  Increased reporting requirements to the Virginia Division of Child Support Enforcement.  Currently, employers are required to notify DCSE of the termination of a non-custodial parent.  The new law will require employers to also notify DCSE of the termination of a custodial parent, if that parent was carrying the child(ren) on their health insurance plan.

4.  Paying employees electronically by “loading” a debit card.  This practice will no longer require the employee to sign a consent for this method of payment, but only if the employee does not provide another means of paying them electronically (namely, bank account information for direct deposit).  This change will apply to any employees hired after January 1, 2010.

If you have any questions about these changes in Virginia law, please let me know.

Regards,

Charlotte

Cole James Associates, Inc. provides Human Resources services and support to small and medium sized businesses.  To learn more about these services, please visit our website at www.colejamesassociates.com or call (804) 339-5576.

New Employment Poster Requirements

The new Virginia EITC postings are now available and are required to be posted by all employers.  The posters can be found at Virginia EITC postings, at the bottom of the page.  There are two posters that must be displayed:

1.  There are two federal poster options.  Employers can choose the one they want to post.

2.  There are also two state posters, but the only difference is color versus black/white.  Either option is acceptable.  You will also notice there is a Spanish version.  This version only needs to be posted if you have a significant employee population that does not speak English.

Posters must be displayed alongside your other federal and state posters by July 1.

Finally, if you have an employee wanting to take advantage of EITC, you can download a form W-5 from the IRS website for them to fill out.  Payroll companies and most payroll software are equipped to handle EITC.

If you have any questions, please let me know.

Regards,

Charlotte

Cole James Associates, Inc. provides Human Resources services and support to small and medium sized businesses.  To learn more about these services, please visit our website at www.colejamesassociates.com or call (804) 339-5576.

Paying Employees During Inclement Weather

It has been a long time since bad weather has been around to raise the question:  do you have to pay your employees if they don’t come to work due to severe weather conditions?  The answer depends on a couple of factors:  (1) Is the employee exempt or non-exempt, and (2) was the business open or closed?

If the employee is non-exempt, it’s simple.  These employees do not have to be paid for time taken off due to bad weather, even if you close the business.  Your obligation to non-exempt employees is to ensure they are paid appropriately for hours worked.  So, outside of any policies you may have stating otherwise, there is no requirement to pay these employees for time not worked.

Exempt employees are different.  If you close your business for the day, you still must pay exempt employees their full pay.  You can charge the time to vacation, but if you don’t offer vacation or if you provide vacation but the employee has no time off available, you still must pay the employee for the entire day.  (Exceptions exist if you are closed for a full week, but the above applies for anything less than a full week).

If your business is open and exempt employees do not come in because of the weather, they can be docked for a full day’s absence (or count it as a vacation day, if available).  Deducting an employee for a partial day’s absence is not permitted — if they come in late or leave early due to the weather, they still must be paid for the entire day if any work was performed during the day.

The concern over whether or not your business is closed is because the Department of Labor says exempt employees cannot have their pay docked when they are “ready, able, and willing to work”, which would include if your business is closed.  If your business is open, however, and the employee does not come in, the DOL recognizes that as an absence for personal reasons, which can be docked (again, only in full-day increments).

This is a general overview, and there are some additional quirks, depending on the circumstances.  If you have any questions about handling a specific case in your business, please let me know.

Regards,

Charlotte

Cole James Associates, Inc. provides Human Resources services and support to small and medium sized businesses.  To learn more about these services, please visit our website at www.colejamesassociates.com or call (804) 339-5576.

Office Romance

HR’s Take on the Office Romance

Valentine’s Day just passed us by, a well-scripted opportunity to discuss the woes of office flings and romances. If you have employees romantically involved, your place of business is susceptible to “get a room” displays of affection, violent lovers’ quarrels, and everything in between.

It is reported that about half of employees have had a “more than just friends” relationship with a coworker. Previously, many employers adopted blanket non-fraternization policies, but such policies are difficult to enforce, and may lead to invasion of privacy claims due to an employer’s interference in an employee’s off-duty conduct.

So, how can you gain some control over the consequences of having coworkers romantically involved? For starters, don’t get rid of a “no dating” policy – just fine tune it to focus on relevant business concerns. Specifically, policies should prohibit relationships among direct reports or in an immediate chain-of-command. This will go a long way towards preventing actual and perceived conflicts of interest as well as claims of favoritism.

Second, have a strong sexual harassment policy and conduct regular training for all employees. If a relationship fizzles, the behavior of a scorned lover can quickly escalate to a harassment claim. Less obvious is if a relationship thrives, the lovebirds may behave in a way that is offensive to other employees, which can also lead to claims.

“Love contracts” are becoming popular as a response to employees who are dating. These are documents that the involved employees sign that indicate, among other things, the consensual nature of the relationship, the commitment to keeping the relationship professional at work, and a clear understanding of the company’s sexual harassment policy and other applicable policies (such as conflict of interest).

Given the close proximity employees have with each other for long days, it is doubtful that the office romance will ever go away. But, you can protect your business from the consequences of these relationships by taking these relatively easy steps. Please contact me if you have any questions.

Charlotte Jensen is a Human Resources Consultant for small businesses (2-75 employees). As President of Cole James Associates, Ms. Jensen provides her clients guidance on their employment and workplace issues. Based in Richmond, Virginia, Ms. Jensen works with businesses across the nation. She can be reached at (804) 339-5576, cjensen@colejamesassociates.com or www.colejamesassociates.com.

Handling Layoffs

Whether or not you believe the U.S. is actually in a recession, there is no denying that times are tough. Every business owner is somehow feeling the pinch and looking for ways to cut costs. To achieve this, reducing headcount is the first thing many employers consider. If you anticipate a long-term or permanent downturn in business, it may be the right approach. However, it’s not the only option. Alternatives to layoffs include temporary reductions in pay, job sharing, shortened workweeks or even small furloughs. Such approaches spread the impact across the board and can help employers retain their experienced talent for when the tide turns. You may be surprised at who is willing to take a week off without pay or every Friday off for a while, especially if the alternative is that their jobs may be lost altogether. If, however, layoffs are inevitable, there are a few things small business owners should think about – unlike layoffs in a large company that may impact one department; a layoff in a small company affects almost everyone directly.

First, while it goes without saying that employees being laid off should be treated with empathy, the damage they can cause if they feel mistreated cannot be underestimated. They know most, if not all of the names of your customers and vendors. If they are not already under some sort of non-compete or non-disclosure agreement, or if you aren’t offering severance that includes a waiver, then the door is open for a potential effort to steal your customers or disclose your confidential business information to competitors. Customers and competitors naturally come to mind when an employee is in panic mode about finding a new job quickly.

Second, once you lay off employees, what about the ones left behind? Will you address them with a glass half full or empty? It’s about balancing morale with honesty, and I’m all for simplicity. Openly acknowledge that times are tight and the layoffs were needed for the health of the organization. Don’t give false hopes or make promises, but show you’re doing what is necessary to protect the business and, ideally, your employees.

Finally, small businesses don’t have an HR department to conduct layoffs, so it’s up to you. When all is said and done, how will YOU feel affected by having let go of employees you probably hired and mentored? If you’ve made appropriate decisions based on solid business needs, then you should take comfort in the fact that these temporary pains are critical to the potential for long-term gains. That doesn’t mean it feels good to have to let go of some employees, but the goal is to protect the company so that the need to have ANY employees will be there for years to come.

Additional Layoff Tips

1.  It is an emotional time but cannot be an emotional decision. Who is laid off must be chosen with extreme caution, grounded 100% in business fact. “Last in, first out” may be the safest way but is not always the most practical approach. Performance-based decisions are also common, but you have to be careful about being subjective. Well-defined, specific, measurable criteria must be used.  Regardless of the method used, once you make your decision, how does it look on paper? You wouldn’t intentionally discriminate, but if half of those laid off are over forty, and pretty much no one remaining is, then prepare to pay your attorney a lot of money to try to prove that you did not discriminate based on age. A sloppy or subjective decision of who to lay off often leads to these unintentional consequences.

2.  If you’re going to give laid off employees any sort of severance or benefit, consult with your attorney to prepare the appropriate waivers. Sure, you can give the pay or benefit as a kind gesture with no strings attached, but consider using it as an opportunity to protect your business. That really is the point of a severance – giving the employee something of value in exchange for a consideration that protects you, such as “you don’t try to sue me for discrimination”.

3. When you conduct the layoffs, be prepared for the reaction, but don’t react to it. As compassionate humans, our instinct is to do or say whatever we can to soften the blow (think “it’s not you, it’s me”). The more you say and engage in conversation, the more you open the door for wrongful termination claims or making reemployment or other promises you can’t keep or have no intention of keeping. Balance empathy with “just the facts, ma’am”.

4. Resist the urge to write letters of reference for those who ask. Again, although unintentional, what if the employees who get letters are largely of one race, and those who don’t are largely of another race? While you may think it is ridiculous that you could ever be accused of discrimination, it happens every day, and accidental discrimination is still discrimination.

This is meant to be general information on a complex topic. It should not be considered legal advice, nor is it a replacement for seeking professional counsel for your specific situation.

Charlotte Jensen is a Human Resources Consultant for small businesses (2-75 employees). As President of Cole James Associates, Ms. Jensen provides her clients guidance on their employment and workplace issues. She can be reached at (804) 339-5576, cjensen@colejamesassociates.com or www.colejamesassociates.com.