kathleen barrow, partner jackson lewis llp 1415 louisiana, suite 3325 houston, texas 77002 (713)...
TRANSCRIPT
Worker Classification and Compensation:
Truth or DareKathleen Barrow, PartnerJackson Lewis LLP
1415 Louisiana, Suite 3325Houston, Texas 77002
(713) [email protected]
© 2012 Jackson Lewis LLP
Defining the Issue
1st Quarter 2010, IRS commences the “Employment Tax National Research Project:• Employment tax audit program focusing on
worker classification• 6000 random audits of companies from 2011-
2013• New tools developed to aid in identification of
worker classification issues
Defining the Issue
March 16, 2011, Statement of Hilda L. Solis, Secretary of Labor to the Subcommittee on Labor, US House of Representatives• Characterizes employers who misclassify
workers aso Avoiders of minimum wage and overtime lawso Evaders of payroll taxeso People who seek to deny workers of the protection
of health and retirement benefits, workers’ compensation and unemployment compensation
Federal Statistics Relied Upon by IRS and DOL
Up to 30% of employers misclassify workers3.4 million workers are contractors, when they should be employeesRevenue loss to US Treasury is $3.4 billion, annually• Income tax• Social Security• Medicare• Unemployment Insurance Trust Fund
What IRS is Doing (other than the 6000 audits)
Form SS-8s sent to self-employed individuals who receive Form 1099Questionnaires to sponsors of employee benefit plansInformation sharing with DOL, state unemployment and taxing agencies• Form 211- Whistleblower Program
o Up to 30% of tax, penalty and interest recovery for individual transactions $200,000 or more and corporate transactions of $2 million or more
o Up to 15% of tax, penalty and interest for lesser transactions
What the DOL is Doing
129 FTEs for multi-agency audit and enforcementWage and Hour hires 107 new investigators for targeted industry investigations$24.7 million to fund state grants to identify worker misclassification issues in state unemployment insurance administration and facilitate information sharing with DOL
More DOL Initiatives
OFCCP allocates $3.6 million and 11 FTEs to address misclassification in government contract operation Office of the Solicitor allocates $1.4 million and 7 FTEs to bring multi-state litigation against large employers determined to “abuse” independent contractor statusOSHA adds 2 FTEs to train inspectors on worker classification issues
Worker Misclassification Issues
Employment tax liabilityMinimum wage and overtimeUnfair labor practices liabilityViolation of terms of government contracts as to prevailing wage, etc.Employee benefit plan operational failures• Tax liability• Benefit liability
Federal Tax Exposure
Employment tax liability• Past federal payroll taxes (3 years back, or more)• State payroll taxes• Up to 100% penalty—if willful failure• Income tax not withheld• Trust fund recovery penalty for responsible
persons
Section 530 Relief
Employer has properly filed all tax and informational returnsEmployer has consistently not treated workers in job as employeesEmployer reasonably relied upon• Consistent and widespread industry practice• Attorney advice• Prior judicial or administrative precedents
FLSA Exposure
Minimum wage/over time (up to 6 years)Liquidated damages (100% penalty)Application of damage model to all workers in same job, not just individual workerDOL supervision over payment of wagesAttorneys’ fees and costs
Employee Benefit Plan Exposure
Welfare plans• Premium costs• Lost benefits• Loss of tax benefits for certain
employee/participants401(k) plan• 50% of average elective deferral for all years of
eligibility• Matching contributions• Investment earnings (average)• Correction with DOL and IRS for plan failures
Classification Tests
Common law—23 factor testFLSA- “economic realities” testIRS• Behavioral controls• Financial controls• Type of Relationship
IT ALL REALLY BOILS DOWN TO…
THE “JOE THE PLUMBER” TEST!
Questions?
Thank you for your kind attention!
Speaker
Kathleen R. Barrow, PartnerJackson Lewis LLPThe Wedge International Tower1415 Louisiana, Suite 3325Houston, Texas 77002(713) [email protected]