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Independent Contractor or Employee? What You Need to Know

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					                      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

Copyright © 2012 CPE HR, Inc. All rights reserved
                    Typical Independent Contractors
                        Accountant
                        Lawyer
                        Plumber
                        Cleaning Crew

                       Working for multiple individuals or
                       businesses
Copyright © 2012 CPE HR, Inc. All rights reserved
                    Typical Employees

                           “Production” workers
                           Clerical and administrative staff



                    Engaged in the work of the business

Copyright © 2012 CPE HR, Inc. All rights reserved
                    Different Agencies – Different Factors

                           IRS (20 Factors – Revenue Ruling)
                                   Behavioral Control
                                   Financial Control
                                   Type of Relationship




Copyright © 2012 CPE HR, Inc. All rights reserved
                    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?



Copyright © 2012 CPE HR, Inc. All rights reserved
                    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?



Copyright © 2012 CPE HR, Inc. All rights reserved
                    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
Copyright © 2012 CPE HR, Inc. All rights reserved
                    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

Copyright © 2012 CPE HR, Inc. All rights reserved
                    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
Copyright © 2012 CPE HR, Inc. All rights reserved
                    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


Copyright © 2012 CPE HR, Inc. All rights reserved
                    EDD Audit
                           Other Options
                                   Modification of assessment
                                   Dealing with Tax Auditor and Compliance
                                    Representative
                                   Installment Agreements




Copyright © 2012 CPE HR, Inc. All rights reserved
                    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




Copyright © 2012 CPE HR, Inc. All rights reserved

				
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Description: How to identify the difference between an employee and independent contractor in your business. What are risks and pitfalls of misclassifying them?