Independent Contractor
or Employee? What You Need To Know
Copyright © 2012 CPE HR, Inc. All rights reserved
Presented by:
Mike Holmes, SPHR Executive Director of Client Services
Copyright © 2012 CPE HR, Inc. All rights reserved
About CPEhr...
Founded in 1982, CPE HR is the oldest privately held outsourced Human Resources Company in California. Dedicated to meeting the employment-related needs of outstanding businesses, CPE HR offers the human resource services, expertise and products necessary for our clients to be competitive and successful in today’s complicated, volatile and ever-changing business environment.
Copyright © 2012 CPE HR, Inc. All rights reserved
About CPEhr...
Industry Commitment • Member, Professionals In Human Resources Association
(PIHRA) • Member, Society for Human Resource Management
(SHRM) • California Chamber of Commerce • Other California Chamber’s • Clients in 42 States
Specialize in California Employment Environment
Copyright © 2012 CPE HR, Inc. All rights reserved
Why does it matter?
Can be expensive for the employer
Taxes
Payroll taxes
Personal income tax deductions (employee)
Penalties and interest
Statuary violations
Payment of wages, breaks, etc.
Workers’ Compensation
Safety requirements
May be individual liability
Copyright © 2012 CPE HR, Inc. All rights reserved
Why so important now?
Renewed interest from State and Federal agencies Cal. Senate Bill 459 aka “The Job Killer Act” effective
January 1, 2012 Penalties between $5k and $25k for “willful misclassification
Employer must post violation on their website
State now sharing information with IRS and DOL
State and Federal governments need to increase revenues
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Typical Independent Contractors
Accountant
Lawyer
Plumber
Cleaning Crew
Working for multiple individuals or businesses
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Typical Employees
“Production” workers
Clerical and administrative staff
Engaged in the work of the business
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Different Agencies – Different Factors
IRS (20 Factors – Revenue Ruling)
Behavioral Control Financial Control Type of Relationship
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Different Agencies – Different Factors
Department of Labor (DOL) – Federal
Control over manner of work Opportunity for profit or loss Investment in equipment and materials Special Skills Permanency of the relationship Extent work is integral part of the business
Copyright © 2012 CPE HR, Inc. All rights reserved
Different Agencies – Different Factors
Department of Labor Standards Enforcement (DLSE) – State Distinct occupation or business; not part of the
regular business
Investment in equipment; use own tools
Opportunity for profit or loss
Unique skills
Rights of control in the manner in which the work is performed
Relationship can be severed by breach or contract
Copyright © 2012 CPE HR, Inc. All rights reserved
Different Agencies – Different Factors
Employment Development Department -EDD
Primary Factors Right to control the manner in which work is performed
Quit/discharge at any time
Part of regular business/Separately established business
Profit/Economic risk
Investment/Risk of loss
Secondary Factors Employees doing same work
Who furnishes tools/equipment
Skill of work/training required
How payments are made/understanding of the parties
Copyright © 2012 CPE HR, Inc. All rights reserved
Degree of Control/Manner
Has the company provided the individual with specific operating procedures? Are any other specific instructions given as to how the work is to be performed?
Does the company schedule when the individual is to be at work?
Does the company provide the work location, equipment, supplies, etc.?
Does the company have control over the operation as a whole?
Copyright © 2012 CPE HR, Inc. All rights reserved
Profit and Loss/Investment
Does the individual have a separate and distinct business?
Does the individual have his/her own clients that are not associated with the company?
Can the individual make the decision to have someone else perform the work?
Does the individual have an investment in equipment, etc. that is substantial?
Copyright © 2012 CPE HR, Inc. All rights reserved
Profit and Loss/Investment
Does the individual advertise as a separate business? Does he/she hold him/herself out as a separate business?
Does the individual have an opportunity for additional profit depending on his/her own managerial skills?
Does the individual hire his/her own employees?
Is the individual licensed to perform the work?
Is the individual reimbursed for expenses?
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Integral Part of the Business
Is the work the type of work which is performed by the business for its clients/customers?
Does the Company have employees who do the same type of work?
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Specialized Skills
What skills are required for the work?
Does the company provide any training?
Copyright © 2012 CPE HR, Inc. All rights reserved
Nature of the Relationship
Can the individual quite or be fired at any time? Or, is there a contract for a specified job that is paid upon completion? Can the individual bring an action for breach of contract?
How is the individual paid? By the job, hourly, fixed amount for a certain time?
Is there an intent to continue the relationship for a long period of time?
What are the parties’ respective understandings with respect to the relationship?
Is there a written contract?
Copyright © 2012 CPE HR, Inc. All rights reserved
Potential DLSE Actions
Investigation – “Employee” Questionnaire
Citations/Penalties
Recordkeeping
Overtime
Rest/Meal Periods
Check Stubs
Uniforms/Tools
Workers’ Compensation
Other violations of IWC Orders or Labor Code
DLSE may share information with other State and Federal Agencies
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EDD Audit
Date Gathering
Review of Records
General ledger/financial worksheet
Bank records – payments to individuals
Payroll reports (if any)
Worker Interviews
Meeting with “Employer”
Possible Role of Accountant/Attorney
Worst Response: None
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EDD Audit
Period Covered 3 – year Statutory Period (CUIC §1132)
BUT- “failure to file without good cause”
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EDD Audit
Proposed Notice of Assessment
Taxable Wages UI
ETT
SDI
PIT
Plus penalties and interest
Exit Interview Opportunity to provide additional
information/explanations
Finalized Assessment – Amount Due
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EDD Audit
Appeal Rights
If no appeal, process continues
Will put hold on involuntary collection
Worst response: Do nothing
Involuntary collection
Tax liens
Appeal even if late with explanation
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EDD Audit
Other Options
Modification of assessment
Dealing with Tax Auditor and Compliance Representative
Installment Agreements
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Be proactive…
Read through the Labor Department’s rules and examine workers’ job descriptions to determine whether classifications are correct.
Complaints should be investigated promptly. A worker claiming that they are entitled to a particular status or financial benefit should be heeded and employers should be sure to examine the case.
Review the various departments’ guidelines. For example, the IRS provides clear eligibility parameters for determining independent contractor status.
Consult with an attorney or human resources professional for assistance in determining an individual’s status.
Copyright © 2012 CPE HR, Inc. All rights reserved
HRCI Recertification Credits
Title: Employee v. Independent Contractor, what you should know
Date: 9/27/2012
Recertification Credit Hours Awarded: 1
Specified Credit Hours: General
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