Temporary Worker Misclassification Crackdown Spreads Across the U.S: Feds Announce Misclassification Alliance

Government agencies have aggressively cracked down on worker misclassification in recent months; but took it an extra step further last week when they announced that the U.S. Department of Labor has entered into an agreement with the IRS and other agencies to crack down on employers that misclassify workers as independent contractors when they should be classified as employees.

The signatory states are Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah, and Washington with other states expected to follow suit. Numerous other states, including Pennsylvania and Wisconsin, have already passed worker misclassification laws that impose severe penalties on employers who misclassify their employees in an attempt to recover billions in lost revenue.

If a worker is an employee, the employer must pay the necessary federal and state unemployment taxes AND its share of Social Security and Medicare taxes, in addition to the withholdings of the employee's share of Social Security, Medicare and Income Taxes. The employer must also incur costs related to pensions, health insurance, vacation pay, sick pay, and workers' compensation insurance. In addition to all this, employers face federal and state regulations regarding working conditions and overtime.

With all of these burdensome obligations to handle, no wonder employers try to take a shortcut by classifying temps as independent contractors. However, with the likelihood of getting caught on the rise, the financial implications of incorrectly classifying workers could be financially crippling. If your company is found to be in breach of the rules, penalties include back taxes, PLUS interest AND a fine of up to 35% of the total owed. 

If you utilize or supply temporary workers on a 1099 basis, it’s worth talking to a company like Emergent (855 250 5000) who are able to handle employer obligations including payrolling, tax withholding, workers’ comp and risk management on your behalf.     

Unfortunately, the economic downturn has increased pressure on staffing firms and their clients to classifying temporary or contract workers as independent contractors to lower their costs and/or provide a better rate to their clients. Staffing firms tempted to do so are well-advised to first make sure they are complying with federal and state law as well as the IRS 20 Factor test. The majority of workers assigned through a staffing arrangement perform their work under the supervision and control of either the staffing firm or the client, and the assignment usually takes place at the client’s offices –a good indicator that the worker should be classified as an employee rather than a contractor.

Worker misclassification also can lead to other serious issues such as work authorization, overtime pay, benefits eligibility, workers' compensation insurance, state unemployment insurance taxes, and violation of state worker misclassification laws. The entire process can be costly and extremely onerous for businesses. To be safe rather than sorry, contact Emergent today on 855 250 5000 or info@emergent.com.

For additional information on proper classification of workers, see the new 12th edition of the ASA book Employment Law for Staffing Professionals.

Working with PEOs: Do you know the risks?

PEO’s (Professional Employer Organizations) comprise a nearly $10 billion industry in the United States. These companies provide valuable services to clients who want to leverage a 3^rd party employer to handle the statutory employer responsibilities as a co-employer of their workers. 

PEOs essentially hire their clients’ workers, thereby becoming their employer of record for tax and insurance purposes, charging a service fee (usually between 4 – 12% of payroll) in return for taking over the payrolling and HR functions of the workers performing services for their clients.  

In recent years many staffing companies have looked to PEOs to help employ the workers they recruit who perform services at client sites. This relationship is a bit more complex that a direct one between a PEO and a client company because there may be three employers rather than two – the staffing company, the client company, and the PEO.

Some staffing companies are attracted to using PEOs because they be able to leverage the PEO’s workers’ compensation coverage at a much lower rate than their company could obtain directly through a broker or through State insurance.  However, many staffing companies that use PEOs are unaware of the risks involved in using these resources to lower workers’ compensation costs.  

Problems occur when staffing companies attempt to obtain a lower worker’s compensation rate by “piggybacking” off of another PEOs insurance policy.  In California piggybacking was barred in 2003, but some staffing companies and PEOs do not understand the complexities of this type of engagement which may be primarily based on saving on workers’ compensation insurance.

Recently, California’s State Compensation Insurance Fund (SCIF) won a case that found a staffing company and a PEO in violation of subverting payment of millions of dollars worth of worker’s compensation premiums.

According to sources close to the case, the damages and penalties could end up costing upward of $300 million dollars – due in part, to Code Section 756 which says an employer is liable for 10 times the amount of premium it avoided paying due to its fraudulent actions.

Because of the potentially ruinous penalties, consult your legal counsel if you are considering engaging a PEO to make sure that the arrangement you undertake is in compliance with federal and state law and that the PEO has a proper arrangement with their insurance carrier. The rules and regulations for employing contingent workers can be complex and it can be easy to fall into non-compliance of them.

Emergent is a trusted employer of temporary and project-based contingent workers throughout the U.S. Our family of companies services are utilized by Fortune 500 companies and small businesses alike. Emergent is not a PEO, we screen and employ the workers staffing companies recruit, looking after employer obligations such as HR, Legal, Risk Management, Payrolling and Worker’s Compensation.

To find out more about how Emergent can help your business today call us at (855) 850-5000 or e-mail us at info@emergent.com. 

The Rise and Risks of the Contingent Workforce

Last week, Emergent was invited to host a webinar for HR.com and the Institute of Human Resources on "The Rise and Risks of the Contingent Workforce".

If you'd like to hear the webinar or receive a copy of the presentation, please click here where you will be taken to HR.com and prompted to create an account (it's quick, easy and takes just a minute) so that you can view our webinar on the HR.com site. Alternatively, you can e-mail info@emergent.com and one of our team members will send you a copy.


During the webinar, we asked the attendees to take part in a short poll and we found that co-employment, along with 1099 misclassification, were the top two concerns for companies hiring temporary workers. 

Co-employment is worrying for many companies that use contingent workers as the rules can be complex, change often, and can be challenging to sort out. Co-employment occurs when the company that utilizes the contingent worker’s services (the client company) manages the workers on a day-to-day basis, becoming a co-employer or joint employer along with the staffing supplier.

Co-employment could mean that the client company may be held liable for the decisions and mistakes of the staffing supplier and vice versa. Client companies and staffing suppliers must be clear about who is the employer of the worker and what responsibilities each company has towards the worker. These can vary from state to state, so companies must make sure that they are familiar with local as well as federal laws. Remember, it is both the staffing supplier AND the client company's responsibility to familiarize themselves with the law. Don't simply rely on the other party to tell you what you need to do - they might get it wrong...

Of course, it is relatively easy for a seasoned hiring manager or staffing supplier to become familiar with the laws around employing contingent workers, and they must also make sure that line managers throughout the organization of the client company know the rules and best practice surrounding the treatment of contingent workers, should they have any under their supervision. This can often prove challenging. 

We suggest that companies and staffing suppliers - after thoroughly researching best practice and obtaining legal advice - create a guide book that managers can refer to on how to properly engage contingent workers. Interestingly, when polled during our webinar, 64% of HR professionals said their companies did not issue any such guidance for hiring managers. 


Another concern for our webinar attendees was the misclassification of temporary staff as independent contractors. 46% of contingent workers classified as 1099 independent contractors are found by the IRS to be misclassified and one in three companies fail their worker classification audits.


Again, the rules are complex, so we suggest taking the 20 point IRS test to carry out an assessment of your contractors. If you don't meet the required criteria, your contractors may be more appropriately classified as W2 employees. If so, you should give us a call....


Emergent employs the contingent workers your company recruits or supplies. We are part of a family of companies that is one of the largest employers of contingent labor in the U.S. - trusted by many Fortune 500 companies to employ their contingent workforce.

Talk to us today to find out how we can help you manager your contingent workforce, maximize your profit and minimize your risk. Call us on 855 250 5000.

Wage & Hour Laws - Meal Penalties in California

Federal and State Wage and Hour are important to follow for the companies that supply and use a contingent workforce. Not following or understanding these laws can lead to costly violations that can be easily avoided. 


California, for example, is a State that has many Wage and Hour law considerations.  If you operate a business in California or utilize California residents to perform work in other States there are several important things to consider for meal breaks. 

Employees in California are entitled to an unpaid 30-minute, duty-free meal period after working for five hours and a paid 10-minute rest period per four hours of work. 

California Labor Code section 226.7 prohibits employers from requiring employees to work during any mandated meal or rest period. Employers who fail to provide the mandated meal period or rest period must pay the employee one additional hour of pay at the employee's regular rate of compensation for each work day that the meal or rest period is not provided.


A minimum of thirty (30) minute meal is required every five (5) hours unless the scheduled shift ends at six (6) hours and is mutually agreed upon between client manager and worker.  If meal is not received the employee is due one (1) hour of their wage as a meal penalty.  Employees only receive one (1) meal penalty per day regardless of how many are incurred. 

The only exceptions to the rule are when

The nature of the work objectively prevents an employee from being relived of all duty

AND

The on-duty meal break is agreed to in writing by the employee and his or her employer

AND

The employee is paid for the meal break

To ensure that your company complies with the labor law, you should:

Review meal and rest period policies for contingent workers to ensure they meet with the law

See if any positions qualify for “on-duty” meal periods and ensure that the appropriate agreements are signed

Make sure all employees read and acknowledge in writing that they understand your company’s meal and rest break policy

If a worker is not able to take their required break, you must pay the additional hour of pay they are owed

Ensure that your managers and supervisors monitor employees to make sure that they are taking their statutory breaks and mark the breaks on their timecards

Make sure you keep good records!