Tag Archives: employee

August 11, 2015

Misclassification of Independent Contractors Under Increased Scrutiny

The Idaho Department of Labor is stepping up efforts to identify companies that misclassify employees as independent contractors. It recently signed a memorandum of understanding with the U.S. Department of Labor to work together to help prevent the misclassification of workers. In doing so, Idaho joins 23 other states who have signed similar agreements, including Alabama, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Rhode Island, Texas, Utah, Washington, Wisconsin and Wyoming.

Why Focus on Independent Contractor Status?

Federal and state labor agencies care whether workers are classified as employees rather than independent contractors because the classification can determine whether the individual is entitled to important workplace benefits and protections. Many employment laws, such as those governing minimum wage and overtime pay, meal and break periods, family and medical leave, workers’ compensation, unemployment compensation, employment taxes and anti-discrimination, apply only to employees, not independent contractors. Consequently, if an employee is misclassified as an independent contractor, he or she misses out on the protections and benefits provided by such laws.

Another reason cited by David Weil, Administrator of the U.S. Department of Labor Wage and Hour Division, is that employers who follow the law by properly classifying workers as employees often cannot compete on a level playing field with employers who misclassify their workers as independent contractors. Companies who misclassify workers often avoid the added costs of properly paying, insuring and withholding employment taxes for workers who should be treated as employees. According to the DOL, this lower cost of utilizing independent contractors may give non-compliant companies an unfair advantage in the marketplace. For these reasons, remedying misclassifications is at the forefront of the agencies’ enforcement efforts.

What’s At Stake For You?

Companies that misclassify employees as independent contractors face substantial liability. Ken Edmunds, Director of the Idaho Department of Labor, suggests that even though businesses often use independent contractors because they think it will save them money, in the end, misclassifications can cost them “a whole lot more,” with the potential for severe monetary fines and even criminal charges.

The Internal Revenue Service (IRS) and state tax entities will pursue back taxes with interest based on the employer’s failure to withhold income taxes and make FICA contributions. Employers also remain liable for unemployment taxes related to the misclassified workers. In addition to the back taxes, employers may face criminal and civil penalties.

Employers also face wage claims for unpaid overtime pay that would have been due to the worker if properly treated as an employee. If the misclassified individual was denied leave under the FMLA or participation in a group benefit plan, the employer may face claims under those respective laws. Failure to complete I-9 forms or other employment eligibility requirements may result in additional liability. In short, you may become liable for failing to comply with or offer any benefit or protection that was denied to the individual because of the misclassification.

What Should You Do?

If your company uses independent contractors in your workforce, take steps now to audit whether those workers meet the tests for independent contractor status. Remember, you do not escape liability if the individual asks or agrees to be treated as an independent contractor. You must analyze whether the individual meets the requirements for that classification.

Although numerous factors go into determining whether a worker is an independent contractor, the Idaho Department of Labor lists two criteria that must be met:

The worker must be free from the right of direction or control in performing work, both under a contract of service and in fact; and
The worker must be engaged in an independently established trade, occupation, profession or business.

A fact sheet titled “Independent Contractor or Employee?” provides additional detail to help you determine the proper classification of workers and is available on the Idaho Department of Labor’s website. A similar fact sheet on Employment Relationships Under the Fair Labor Standards Act (FLSA) is available from the U.S. Department of Labor, Wage and Hour Division.

With both the federal and state labor departments stepping up efforts to audit companies to discover employee misclassifications, taking steps now to avoid the associated liability is warranted. It also will help your organization avoid costly lawsuits filed by independent contractors who missed out on overtime pay and other employee benefits.

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December 12, 2014

Supreme Court Says No Pay For Security Screening Time

Supreme Court Says No Pay For Security Screening Time

By Brad Williams

Should employers pay employees for time spent in mandatory, post-shift security screenings designed to deter theft? Not according to a recent Supreme Court decision.

On December 9, 2014, the Supreme Court unanimously held in Integrity Staffing Solutions, Inc. v. Busk, No. 13-433 (2014), that post-shift, anti-theft security screenings are not compensable work time under the Fair Labor Standards Act (FLSA). The decision reversed a Ninth Circuit decision holding that workers in two Amazon.com warehouses were entitled to pay for periods spent waiting for, and being screened at, security checkpoints after their shifts had ended. The workers claimed that they spent roughly twenty-five minutes per day in such screenings, which included removal of their wallets, keys, and belts.

Splitting from other courts to have considered the issue, the Ninth Circuit held that such time was compensable because the workers’ post-shift screening activities were necessary to their principal work activities, and were performed for the benefit of their employer. However, the Ninth Circuit’s understanding of compensable work time under the FLSA echoed that in earlier judicial decisions that had been expressly overruled by Congress.

Specifically, in response to a flood of litigation caused by the earlier decisions, Congress had passed the Portal-To-Portal Act in 1947 to clarify that employers are not obligated to pay employees for activities which are “preliminary” or “postliminary” to the principal activities they are employed to perform. As such, time spent before or after a worker’s “principal activities” is not compensable unless it is spent on activities that are themselves “integral and indispensable” to the worker’s principal activities. Regulations interpreting the Portal-To-Portal Act had long held that activities like checking into and out of work, or waiting in line to receive paychecks, is not compensable work time.

In its December 9th ruling, the Supreme Court reaffirmed that just because an activity may be required by, or may benefit, an employer, does not mean that it is a compensable “principal activity,” or is “integral and indispensable” to a principal activity. The warehouse workers’ employer did not employ the workers to undergo security screenings; it employed them to retrieve products from warehouse shelves and to package the products for shipment to customers. The security screenings were also not “integral and indispensable” to the warehouse workers’ principal activities because their employer could have eliminated the screening requirement altogether without impairing the workers’ ability to perform their jobs.

In reaching its decision, the Supreme Court stated a new definition of “integral and indispensable” activities to guide lower courts. An activity is now “integral and indispensable” to an employee’s principal work activities if it is an “intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.” Examples include time spent by battery-plant employees showering and changing clothes because chemicals in the plant are toxic to humans. It also includes time spent by meatpacker employees sharpening knives because dull knives cause inefficiency and other problems on the production line.

The Supreme Court’s decision gives employers much-needed certainty regarding the compensability of certain “preliminary” or “postliminary ” activities. It clarifies that most employers may continue performing uncompensated pre- and post-shift security or anti-theft screenings without fear of successful FLSA collective actions. The decision is particularly relevant to employers in the retail industry, who regularly conduct anti-theft screenings, and to other employers who are increasingly performing security screenings in an era of heightened concerns over terrorism.

Because the FLSA sets minimum standards for wage and overtime payments, states may set higher standards for compensable work time, including with respect to “preliminary” or “postliminary” activities. Unions may also bargain with employers to make such activities compensable. But the Supreme Court’s recent decision helps push back on the tide of FLSA collective actions filed by employees claiming that certain activities are compensable because they are essential to their jobs. The decision also follows a similar Supreme Court decision in January 2014, Sandifer v. U.S. Steel Corp., No. 12-417 (2014), in which the Court held that time spent by union-employees donning and doffing personal protective equipment was not compensable. Taken together, these decisions suggest a concerted judicial effort to address the explosion of FLSA collective actions.

June 21, 2012

New Case Clarifies Test for Contractor Status

By Mark Wiletsky

Many organizations rely on independent contractors–sometimes referred to as consultants or just contractors–to perform a variety of services. But determining who is a contractor, as opposed to an employee, is not an easy task. A variety of state and federal rules apply, each with different factors and tests. If you misclassify an individual, the penalties can be severe. For example, in Colorado, a business may be fined up to $5,000 per misclassified employee for the first offense, and up to $25,000 per misclassification for subsequent violations if the violations were willful. Businesses may also be liable for back taxes, interest, failure to pay overtime, and a variety of other penalties for failure to provide benefits. Therefore, it's very important to ensure an independent contractor fits the tests for contractor status. A new Colorado case provides some important guidance on this subject.

In Softrock Geological Services, Inc. v. ICAO, the Colorado Court of Appeals had to decide whether an individual who provided services to Softrock as a contractor over a three-year period, without performing similar services for others during that period, was a contractor or employee. Under Colorado's unemployment statute, an individual is presumed to be an employee unless the organization demonstrates that the individual: (1) is "free from control and direction in the performance of the service" and (2) "is customarily engaged in an independent trade, occupation, professional, or business related to the service performed." The second part of the test is often difficult to prove. A number of Colorado cases have concluded that unless the contractual arrangement is relatively brief, an individual must perform services for more than one entity to be a contractor. Such a test, however, places a heavy, and often unfair, burden on businesses.

Businesses do not always track the outside activities of a consultant, and a consultant may choose to work for only one entity for a period of time. Recognizing this, the Court of Appeals in Softrock concluded that it is improper to classify an individual as an employee solely because that person did not perform similar services for others while performing services for the alleged employer. Instead, the failure to perform services for others is merely one factor to be considered. The other factors include: the existence of a quality standard; payment of a salary/hourly rate as opposed to a fixed or contract rate; ability to terminate the individual for limited reasons, such as failing to produce results or violating the contract; whether training is provided; whether tools and benefits are provided; whether the individual is subject to a set schedule or has authority to set his or her own schedule; payment to a business or tradename as opposed to an individual; and whether the individual and the business have combined operations or maintain separate and distinct operations. The court remanded the case to the Industrial Claims Appeals Office for reconsideration, though it is possible this case will be reviewed by the Colorado Supreme Court.

The court's guidance in Softrock is helpful because many times, individuals will meet the test for contractor status even though they choose to perform work for only one entity for an extended period. Still, as this case demonstrates, repeatedly retaining an invidual to perform services as a contractor over an extended period, without confirming that he or she is working for others, is risky. As a result, it is best to ensure that individuals are, in fact, working for others or making their services available to others while performing services for your business.

Here are some additional tips to keep in mind when retaining a contractor:

1. Don't classify someone as a contractor just because that person asks to be a contractor. The business bears the responsibility, and liability, for appropriately classifying its workers.

2. A signed contract is not enough. A court or auditor will look beyond the contract to determine whether the individual meets the appropriate tests for contractor status.

3. Do not pay an individual; instead, ensure you are paying a tradename or business entity. Payment to an individual is a red flag for auditors, even when the person is legitimately a contractor.

4. Avoid hiring former employees as contractors, unless you are certain they meet the test for contractor status. Again, this is a red flag for auditors, as employees are sometimes reclassified as contractors even though their actual duties have not changed.

5. Get a business card, print out a website, or maintain some other evidence that the individual has a business and makes his or her services available to others. This type of evidence can be very helpful in the event of an audit.

6. Get your attorney involved early to ensure the person meets the appropriate tests. Although a written agreement is not dispositive, it can help, and analyzing the issue before an audit is generally better than analyzing it for the first time during or after an audit has begun.

7. Do not treat the individual like an employee, i.e., do not have the person sign an employment contract, do not evaluate the individual with the same forms you use for employees, and if you give the person a business card, be sure it notes the individual is a contractor.

8. Do not retain someone as a contractor with the idea of hiring that person as an employee if he or she does well. Most likely, that person will not fit the tests for contractor status.

9. Do not assume that individuals performing short-term projects or part-time work are automatically contractors. Often times, they are part-time or short-term employees.

10. When in doubt, err on the side of employee status.

Contractor misclassification is a big issue in Colorado and many other states. Therefore, be cautious when retaining contractors, and be sure they meet the appropriate tests for contractor status.

May 10, 2012

Good Documentation — a recipe for success

By Mark Wiletsky

As a follow-up to a recent post, here is an article with tips for documenting employee performance issues.

Before terminating an employee, even in an at-will state such as Colorado, employers are well-advised to have good documentation in hand. A solid “paper trail” documenting legitimate performance or behavioral issues is often your best weapon to prevent or quickly resolve opportunistic claims from poor performers and disgruntled employees. Although documenting problems is not required by law, jurors expect to such evidence when faced with a claim that the employee was terminated for an unlawful reason. There is no “one-size-fits-all” approach to documenting performance problems, but following a recipe will help to ensure that your documentation contains the key ingredients to ward off a claim.

1. Start with the facts. When documenting performance or behavior problems, avoid ambiguous or subjective phrases and terms, such as saying the employee has a “bad attitude” or has behaved “inappropriately.” Instead, be factual, specific, and give examples. For example, rather than saying an employee has “repeatedly been late to work,” you could write: “John’s shift begins at 8:00 a.m. However, on March 5, 21, and 28, 2012, John arrived at 8:10 a.m., 8:15 a.m. and 9:00 a.m., respectively. John did not call his supervisor in advance to notify him that he would be late those days. As a result of John’s tardiness, employees from the earlier shift had to stay late, causing the company to incur additional expenses, which it is trying to minimize.” Also, replace labels (such as “bad attitude”) with a description of the actual conduct that is at issue, e.g., John has been inattentive during staff meetings, he failed to work with his teammates to complete deliverables on the X project, etc. Lastly, avoid acronyms and highly technical jargon. Make sure that a layperson could read the document and understand the problem.

2. Add in the employee’s explanation. After identifying the problem, recite the employee’s explanation for the problem, or confirm the employee admitted to the behavior. For example: “When Michelle and I met with John on April 1 to discuss his tardiness, John admitted he had been late on the days noted above, but claimed that he had overslept or that road construction delayed him.” Then state that those excuses are not legitimate and reiterate the expectation that the employee will adhere to the rule at issue.

3. Throw in some history. If the employee has had other problems recently, reference those issues. Similarly, if you have had prior conversations with the employee about the conduct at issue, and that conduct is recurring, point out those past conversations: “This is not the first time John has had problems with tardiness. We spoke about this issue on February 5, 2012, because he had arrived late to work two times in a two-week period, and I warned him that he needed to be sure to arrive on time and notify his supervisor if he was going to be late.” But don’t go back too far into the past, and be sure that you are following any applicable collective bargaining agreement with respect to the time period during which past performance issues may be used against an employee.

4. Lay out expectations. Make sure the employee knows what you expect, and include a policy (or excerpt), if applicable. A common sentence included in disciplinary memoranda is: “We expect immediate and sustained improvement. If there are any further issues or problems, you will be subject to additional discipline, up to and including termination of employment.”

5. Finish off with a signature. Make sure the employee signs a document to confirm receipt. Employees or their attorneys may claim that an unsigned document was created after the fact, or that the issue was never discussed with the employee. If the employee refuses to sign the document, simply note the employee refused to sign, and consider sending a copy of the memo to the employee via e-mail with a note, such as: “John – here is a copy of the warning memo that we discussed a few minutes ago.”

Although there is no one “recipe” for successful documentation, following the steps outlined above should be a good start to ensure that you are appropriately documenting performance issues.