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Although many employers may currently be experiencing an uptick in their businesses, the uncertainty surrounding the direction of our country’s economy remains. On top of the already-recognized economic uncertainty, a new incentive to stay “downsized” is the passage of health care reform. The ever-increasing cost of health care has always been a major consideration for employers; however, it is heightened by new penalties to be imposed when employees opt out of company-sponsored programs or when employers fail to provide affordable health insurance to employees. These penalties may run as high as $3,000 per employee.
An increasing number of employers, especially manufacturers, are turning to temporary staffing agencies to meet their manpower needs and avoid the cost and uncertainty of a permanent hire. Other businesses have addressed the issue by exploring or expanding independent contractor relationships. Workers’ compensation premium, unemployment tax, health insurance, Medicare, and Social Security can all be avoided. It is therefore not surprising that Washington expressed its displeasure with the most recent unemployment numbers throughout the country, while continuing to pump federal dollars into the economy.
Pending legislation, including the Employee Misclassification Prevention Act and the Taxpayer Responsibility, Accountability and Consistency Act, present landmines for companies who use temporary staff and independent contractors by imposing even more penalties upon companies who misclassify their employees, including the forfeiture of favorable tax treatment. Additionally, the misclassification of employees is being scrutinized by the Plaintiffs’ Bar. Twenty-thousand FedEx drivers have filed 63 consolidated class action lawsuits alleging they have been misclassified as independent contractors. Should they be successful, the damages could be monumental.
If you use independent contractors, beware; an understanding between the company and the worker and the label of “independent contractor” is not enough. When the independent contractor issue is raised as a defense by an employer (for example, in a workers’ compensation claim), the dispositive question is whether the employer has retained the right to control the manner and means of the work. If the parties believe they have established the relationship but the right to control the manner and means of the work is left with the person for whom the service is performed, an employer/employee relationship continues to exist. Accordingly, the issue is decided by examination of the evidence of control or a lack thereof. Relevant factors to be considered include the following:
- Is there a written agreement between the parties agreeing to an independent contractor relationship?
- Who sets the hours/days worked?
- Who selects/provides the materials/tools?
- For traveling employees, who selects the routes?
- Who selects the length of employment?
- Who selects the method of payment? Hourly? Commission? By the job?
- Is the work being performed in any way different from that being done by the regular employees?
Companies desiring to establish true independent contractor relationships which will withstand a misclassification charge should begin with a written agreement enumerating the respective rights and obligations of the parties, which agreement should take into account the above-listed considerations. Additionally, care should be exercised during the performance of the work that company supervisors acknowledge the independent contractor relationship and not treat that worker in the same manner as a company employee; the exercise of direction and control is dispositive. Lastly, it is highly recommended that employers utilizing independent contractors require a certificate of workers’ compensation coverage prior to the commencement of work.
By
Michael J. Reidy