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Crack down on 'independent contractors' coming

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The Coverall decision caused a furor in the franchising world, when a Court decided that Coverall's  franchisees were independent contractors.

But there is much more at stake for franchisees than this one case.

Using contractors offers a lot of benefits, but you have to make sure you're doing it right," says 352 Media's Wilson. 

"You don't want the government to come calling and decide you owe a lot of back taxes for classifying contractors incorrectly. 

Be vigilant about reading the government's contractor classification guidelines and make sure your contractors actually fall within them."

The trade-offs and problems of contingent workers are nicely summarized by Steve King, at Small Business Labs.

"Federal and state governments claim they lose billions of dollars in payroll taxes due to under-reporting by contractors. 

They also claim they collect less in unemployment insurance and worker compensation taxes. Because of this, they are aggressively going after companies they feel mis-classify full time employees as contingent workers.

This issue has huge implications because: (1) companies of all sizes are increasing their use of contract workers; and (2) a growing number of people are choosing to work as independent contractors.

This used to be much simpler issue from the standpoint of the contingent worker - they almost always wanted to become full-time employees. 

But that has changed. 

A growing number of people are seeking the flexibility and work/life balance advantages contract work brings."

The Employee Misclassification Protection Act of 2010 (EMPA), amends the federal Fair Labor Standards Act (FLSA) to Increase government enforcement against employee misclassification practices by employers of all sizes, to curtail and penalize worker misclassification.

EMPA sets strict notice and record-keeping requirements on all employers, with costly penalties for non-compliance (up to $5000 per worker). 

It requires all states to develop and enforce their own employee misclassification enforcement programs through audits and other methods.

King again states that the problem on contingent workers is going to get bigger

"The most important trends of the last few decades is the growing use of contingent workers. This is a structural shift towards employer use of contractors, freelancers, part-timers, etc. instead of hiring full-time, permanent employees."

For more information, King says that "Staffing Industry Analysts are the leading, and maybe the only dedicated) analysts in this space. Their site, blogs and magazine also has lists, ads and references to firms that do contingent workforce compliance. 

In addition to Industry Staffing Associates, Workforce Week is another good source on services related to the contingent workforce. It has broader HR related coverage, but it seems like they usually have an article or two on contingent workers each week."

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This page contains a single entry by Michael Webster published on June 7, 2010 10:43 AM.

FDD Financial Disclosure was the previous entry in this blog.

Employers brace for PPACA-related cost increases is the next entry in this blog.

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