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When an independent contractor becomes an employee: A chain of events

CMMA Blog

Pumpkin spiced lattes! Babies! Generation Z (move over, Millennials)! What do they all have in common? They’re a constant reminder that there’s nothing so constant as change. With its ever-narrowing definition of an independent contractor, California is embarking on the real-time evolution of the gig economy. Here’s the chain of events a company and its workers might go through in response to such changes.

When the definition of an independent contractor narrows:

1. Companies reclassify employees… or not

When an independent contractor becomes an employee, her pay structure changes. Even if all the goodies afforded an employee (healthcare, time off, etc.) bring them close to their original pay in practice, their paycheck may look a lot smaller. That’s because it costs a lot more up front to have an employee and employers withhold taxes. While ICs are still responsible for paying taxes, they can also take advantage of many write-offs, which go out the window once they’re employees. Some employers like this structure, feeling it gives workers more ownership in the company’s success. Others say the structure makes their business model unsustainable.

In the latter case, they may restructure the job completely to avoid hiring more employees. Because often new laws precipitate more ways to get around those laws. Another way to avoid reclassifying is to simply operate business as usual and wait to be challenged. Especially in the case of smaller companies, history shows this could take years or not happen at all. Workers might not know or care about the changes. They may opt not to push out of fear or they may not be able to join together to get strong enough influence. This is a risky approach, but not unheard of.

2. Workers quit or stay

Once employers make their choice, employees make their own. If companies do decide to reclassify workers as employees, they then decide if the situation works for them. If not, they often quit (as we discussed in our last post ). Some stay, preferring the stability that comes with being an employee.  Some may even get promoted under the new arrangement, as this article talks about in the case of Matthew Johnson, who’d been driving for several companies before becoming an employee at Perennial. With a greater presence at the office and familiarity with the ins and outs of his company, Johnson was able to make helpful suggestions that earned him new responsibilities and a promotion.

Many employers and workers alike viewed the previous arrangement as a symbiotic relationship that worked well for both the business owners and the workers they employed. So if their bottom line becomes unacceptable, workers may tap out and either increase work for their other clients or look for different work altogether.

3. Everything changes

No matter what happens, everything will change. This latest evolution in the economy will be replaced with another, which will upend the last. And so it goes. Again and again and again.  Tell it to the Gen Zer who has never burned a CD before. She still thinks she’s going to be young forever.

 

Note: Can’t get enough? We’ve covered misclassification in depth. See more here .

About PayReel:

At PayReel , we minimize the time and effort it takes to get you ready for your project. Rely on PayReel to assume all of the risk associated with worker classification and get back to the business at hand. We make sure you get everyone gets paid quick and easy, and have Client Relationship Managers on call around the clock to answer your questions. All you have to do is call 303-526-4900 or email us. The PayReel team makes live event, corporate media, and brand management payroll easier, faster, and seamless.

The post When an independent contractor becomes an employee: A chain of events appeared first on PayReel .

To view our Partner blog, click here

Worker classification and small businesses: Is the ABC rule the beginning of the end?

CMMA Blog

California—home of eternal sunshine and landmark lawsuits. One of the state’s most recent rulings, in the Dynamex Operations West Inc. v. The Superior Court of Los Angeles County case, resulted in some changes to the ABC test for worker classification. While the test has existed in some form for decades, this iteration eliminates some of the gray area in deciding whether a worker is an employee or not. It’s the narrowest definition of an independent contractor to date.

This ruling has already caused major changes in the Golden State and, if history is any indicator, may have a cascading effect for the rest of us. We hear a lot about worker classification and the big dogs—the Ubers and the FedExes of the world. Today, we’re looking into what it means for the mom and pop shops and the workers they employ.

What is the ABC test for worker classification?

In California, a worker can now be considered an independent contractor only if all of the following apply:

A: the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

B: the worker performs work that is outside the usual course of the hiring entity’s business; and

C: the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Okay, so what’s at stake?

According to the court’s ruling, “the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenue.” Read: money. For the government, tax dollars are a big part of the equation. Small businesses can avoid certain taxes with fewer employees and independent contractors can write off business expenses and may also underreport their income. Hence the resulting “deprivation.”

And for small businesses such as salons? Well it’s the B of the ABCs that’s upsetting the mom and pop apple cart because their workers perform work that is decidedly within “the usual course of the hiring entity’s business.” According to the business owner in this article , the previous model allows them to keep their doors open. They say they can’t afford to pay their workers as employees and provide the benefits required by law. So with the switch, many of this business owner’s workers quit overnight. Many employers and workers alike viewed the previous arrangement as a symbiotic relationship that worked well for both the business owners and the workers they employed.

This website , for cosmetologists, describes the benefits independent contractors have in the “booth rental” model. Like any independent contractor, they set their own schedule and manage their own business. They also keep any earnings beyond their booth rental fee. That means the harder they work and the more loyal clients they secure, the more they earn. As part of the salon, they get the benefit of the establishment’s marketing as well as possible walk-in clients. On the flip side, they also have the not-so-sexy responsibilities that come with owning their own business. They run their own books, pay quarterly taxes, advertise to get their chair filled, purchase their own equipment, and deal with the seasonal nature of the biz. Independent contractors also don’t get paid time off and are responsible for purchasing their own health insurance.

What about the workers?

Okay, so what’s a hairstylist to do? Well the rule purportedly intends at least in part to protect them and provide “the labor law protections to which they are entitled.” But some are concerned about what the change means for their livelihood. If you spend a little time reading threads dedicated to salon workers and truckers , who often work as independent contractors, you’ll find discussions among people trying to figure out how to navigate this new landscape.

They may choose to accept the lower pay along with the guarantees and security that come with being an employee. That is, if traditional salons operating under the booth rental model decide to stay open. Or they can set up their own truly independent businesses, perhaps operating out of their homes and skipping the salon altogether. This will work better for those with an existing loyal client base. For those just entering the field, it remains to be seen.

Bottom line

If you’re outside of California, don’t think this doesn’t directly affect you. Other states are already starting to use the ABC test too (i.e. Illinois, New Jersey, Maine and Massachusetts). And this isn’t just about salons. Many other operations, from physical therapists to those delivering packages to your door, are affected by this change. Often, in cases like these, one landmark case paves the way for others to follow—begrudgingly though the case may be. So even if you don’t personally feel the effect of the changes, you probably will before long. And what about your haircuts? Are you ready to go to your stylist’s home? Soon, it may be one of your only choices for the services you know and love.

 

Note: Can’t get enough? We’ve covered misclassification in depth. See more here .

About PayReel:

At PayReel , we minimize the time and effort it takes to get you ready for your project. Rely on PayReel to assume all of the risk associated with worker classification and get back to the business at hand. We make sure you get everyone gets paid quick and easy, and have Client Relationship Managers on call around the clock to answer your questions. All you have to do is call 303-526-4900 or email us. The PayReel team makes live event, corporate media, and brand management payroll easier, faster, and seamless.

The post Worker classification and small businesses: Is the ABC rule the beginning of the end? appeared first on PayReel .

To view our Partner blog, click here

Worried about payroll fraud? Here’s how to prevent and detect it.

CMMA Blog

The ragtag group of employees who set out to redirect “fractions of pennies ” to themselves in the movie Office Space didn’t think of it as stealing. They’re even portrayed as the heroes in the movie—sticking it to the man and finding themselves in the process. Likewise, payroll fraud is so common in the real world that many don’t even think of it as fraud. They’re not thieves! They’re just “redirecting” funds they feel should be theirs anyway. This mindset, along with how easy payroll fraud sometimes is to pull off, makes for a dangerous combination. Businesses with small payroll departments are most vulnerable, but it happens at the big companies and even feel-good nonprofits , too. We’ve collected a tool kit of tips and resources to help you prevent and detect payroll fraud.

What exactly is payroll fraud and why should I care?

Payroll fraud is a misappropriation of funds commonly in the form of paying “ghost ” employees or vendors and various types of falsifying wages/hours . The Association of Certified Fraud Examiners (ACFE)’s biannual 2018 Global Study on Occupational Fraud and Abuse  covers some of the impact of such fraud. Among its key findings are:

  • Businesses lost over $7 billion among reported cases
  • Small businesses lost more than twice as much per scheme
  • Fraud schemes’ median duration was 16 months

Okay, so how can I prevent it?

As usual, the best approach for protecting yourself is preventing problems in the first place. Preventive measures discourage a would-be fraudster from trying in the first place while also making frauds more likely to be caught early on. Any cost or perceived hassle of preventative measures pales in comparison to the potential cost of lax procedures.

  1. Start at the beginning. Use the Social Security Administration website,  E-verify  or the IRS website  to confirm candidates’ identities. Conduct a background check after that. Continue the process at regular intervals even after hiring. Making this level of scrutiny regular practice ensures it doesn’t appear personal toward a particular employee.
  2. Separate duties. When the same person makes entries, writes checks, and audits the books, they have too much power. Having multiple points of control and separation of duties ensures you keep a system of checks and balances (pun intended) in place.
  3. Conduct internal and external audits. According to the ACFE report, internal audits “accounted for 15% of the frauds detected” and external audits caught 4% of the frauds. Quarterly reviews are a reasonable and healthy standard practice for companies of all sizes.

Something seems fishy. Now what?

So let’s say you’ve taken preventive measures to minimize risk and something still doesn’t add up. Even if they have to get more creative and sneaky, some people will try to overcome the obstacles you’ve put in place. So now you have to dig.

  1. Watch for red flags. This aforementioned article —about the ghosts among us—identifies some of the major red flags to watch out for. Hint: an employee who never takes a day off may not be as dedicated as you think.
  2. Provide a hotline for tips. The ACFE report notes that tips are the most common detection method and that organizations with hotlines receive more tips (46%) to potential fraud than those without (30%).
  3. Follow the money. Corrupt behaviors tend to leave a money trail. More than one employee using the same bank account, vendors you’ve never heard of receiving checks, and unusually high expenses are all signs something may be awry. If something seems fishy, investigate or hire someone to do it for you. And do it quietly so you don’t tip off the fraudster(s) before you have all the information you need.

Bottom line

The ACFE provides in-depth fraud prevention checkup that can get you thinking about the topic in a new way, identify vulnerabilities, and help you determine a course of action to put preventive measures in place. Most payroll fraud, while incredibly frustrating and costly, is highly preventable.

 

Note: A third type of payroll fraud is committed by businesses that misclassify employees as independent contractors to avoid paying payroll tax and other costs associated with employees. We’ve covered misclassification in depth (see more here ) and focused on the kind perpetrated against a company for today’s post.

About PayReel:

At PayReel , we minimize the time and effort it takes to get you ready for your project. Rely on PayReel to assume all of the risk associated with worker classification and get back to the business at hand. We make sure you get paid quick and easy, and have Client Relationship Managers on call around the clock to answer your questions. All you have to do is call 303-526-4900 or email us. The PayReel team makes event payroll easier, faster, and seamless.

The post Worried about payroll fraud? Here’s how to prevent and detect it. appeared first on PayReel .

To view our Partner blog, click here

3 reasons you can’t afford to ignore worker classification rules

CMMA Blog

With its settlement just this week, General Assembly is the latest to make news on the worker classification issue . Companies aren’t the only ones paying attention. The Internal Revenue Service (IRS) and Department of Labor (DOL) have enough skin in the game to keep a close eye on the subject, too. When those two pay close attention to something, it behooves all companies to do the same or risk costly, damaging, and time-consuming consequences.

Here are 3 reasons you can’t ignore worker classification rules:

1.   The government isn’t

For years, the IRS and DOL had bigger fish to fry. Lax regulations essentially led to a jaywalker’s attitude among businesses. The thought being that it’s okay to ignore the unnecessarily-restrictive law as long as you look both ways. As the economic landscape shifts and independent contractors rise in prevalence, the financial stakes and potential for missed revenue get higher. In response, government agencies have been ramping up their focus on the subject and the debate on how to define an employee rages on.

The IRS and DOL are not alone. States are joining the fray, attempting to crack down on misclassification , too.

2.   Consequences are expensive

There’s big money at stake. In addition to potential for paying back pay and benefits,you’re looking at a per employee fine and potential legal fees, too. General Assembly’s one million dollar settlement is small potatoes. Look a little further back and you’ll find that FedEx shelled out $228 million in a misclassification case. Then there’s well-known Microsoft example, in which $97 million  was paid out plus millions in legal fees in a benefits dispute with its long-term temps. And of course there’s Uber which lost a dispute over whether drivers were independent contractors (as Uber said) or employees (as the law determined ).

Just when you thought government scrutiny was driving you crazy enough, here come the lawyers. Where the money goes, they follow. There’s big money in class action lawsuits seeking unpaid benefits, expenses and overtime for workers who can make a case they should’ve been treated as employees.

3.   “We didn’t mean to” doesn’t hold up in court

When you knowingly misclassify employees as independent contractors, it’s called wage theft. When you do it accidentally, it’s called wage theft.

Yes, the rules are confusing. Like many things government, oh what a tangled web the federal and state laws weave. Some laws are interpreted differently from state to state and some tests used to determine status are subjective. But the rules , straight from the horse’s mouth, is a good place to start.

Bottom line

In addition to the financial burdens and time-sucking nature of it all, your credibility is on the line. Getting audited is a PR nightmare and depending on the industry or nature of the company’s business, the press would love to expose a company’s misclassification and actual or perceived abuse of labor laws.

Getting the government, lawyers, and media on your case is a guaranteed trifecta of pain. It can be overwhelming, but even the DOL and IRS recognize independent contractors can be a legitimate part of a business plan and are an important part of our economy. The best way to stay in the clear is to stay in the know. So get smart and there’s no need to burn your W9s and run for the hills.

Need more?

Take our five-minute classification self-audit and review our compliance best practices .

About PayReel:

At PayReel , we minimize the time and effort it takes to get you ready for your project. Rely on PayReel to assume all of the risk associated with worker classification and get back to the business at hand. We make sure you get paid quick and easy, and have Client Relationship Managers on call around the clock to answer your questions. All you have to do is call 303-526-4900 or email us. The PayReel team makes event payroll easier, faster, and seamless.

The post 3 reasons you can’t afford to ignore worker classification rules appeared first on PayReel .

To view our Partner blog, click here

Questions we’re asking about the contingent workforce in 2018

CMMA Blog

The relationship between workers, employers, and government regulations is a balancing act. Each affects the others as inter-connectedly as any of nature’s most delicate symbiotic relationships. The contingent workforce is changing the employer/employee landscape everywhere. Similarly, government changes in healthcare and tax codes are sending a ripple effect through the system. Here’s just a taste of what 2017 has us thinking about as we move into the New Year.

  1. Healthcare: The subject is one of the biggest debates of our time. In theory, the Affordable Care Act made working independently more feasible than ever. One question we face as the Trump Administration chips away at the ACA is whether contingent workers will need to return to employee status or stay in jobs they’d otherwise leave.
  2. Taxes: The theory behind the new tax code maintains that changes benefiting employers will make American businesses more competitive and give the US economy a boost. It remains to be seen how or if these benefits will translate to contingent workers’ wellbeing.
  3. Workers’ Rights and Employers’ rights: Uber and similar companies are going through the early rounds of redefining the legalities around the new landscape. Where do workers’ rights end and employers’ rights begin? It’s a question that will continue to be duked out in courtrooms in 2018.
  4. Natural disasters: 2017 was a record-breaking year for natural disasters. Hurricanes and immobilizing snowstorms can put independent workers out of work for a long time without the protection of an employer. Without some preventative planning , small businesses may be at risk for having to close doors altogether. 
  5. #MeToo: In a way that only social media can do, the #MeToo movement has given a loud voice to a quiet, but longstanding complaint. What was formally a pervasive problem across all industries is now the stuff of crumbling careers and sweeping policy change. In the wake of the attention, many big companies adjusted their events, including prohibiting booze , at their 2017 holiday parties in an effort to prevent any bad behavior.
  6. Paw-ternity leave? With the woman who was granted two days’ sick pay to care for ailing dog, 2017 has us wondering if paw-ternity leave will be yesterday’s headline and tomorrow’s standard practice.

These are some of the issues that made news in 2017 and will continue to shape the economic landscape. We can only guess what’s next, but there’s no doubt it’s a time of great change in the country and economy. What’s on your radar for the coming year?

About PayReel

Producing multimedia content and executing live events is chaotic. At PayReel , we make sure our clients are able to hire who they want, when they want and that everyone is paid properly. Leave the details up to the PayReel team so you can focus on pulling off a flawless production. Contact us anytime at 303-526-4900 or by emailing us here.

Relax. We got it.

The post Questions we’re asking about the contingent workforce in 2018 appeared first on PayReel .

To view our Partner blog, click here

January 2018: The Month of Many Mondays

CMMA Blog

January 2018 is over (finally?) and it’s official: this year is already a doozy. It’s not that it’s all been bad, it’s just been…a lot. Below are a few (really, these are only a few) of the topics in employment, politics, and entertainment that made news in the first 31 days of 2018.

In employment

January 2nd ― A woman in Sydney wins a worker’s comp claim against Woolworths for a “savage bird attack.” Might sound crazy until you find out that the bird is responsible for injuries requiring treatment for at least 10 others.

January 12th ― Maryland passes the Maryland Healthy Working Families Act (“The Act”) and now requires paid sick and safe leave for companies with fewer than 15 employees. Maryland is the 9th state in the country to hop on the paid sick leave bandwagon.  

January 24th ― Starbucks announced , in addition to giving all domestic employees a raise, it’s giving baristas paid sick leave, stock grants, and parental leave (including for the parent who didn’t give birth).

In politics

January 13th ― Hawaii accidentally (debatable ) sends a false ballistic missile alert, sending residents and visitors (i.e. anyone with a cell phone) into a panic.

38 minutes later ―Hawaii issues correction, sending said cell phone owners into false near-death induced soul-searching.

January 20th – The government shuts down.

January 22nd – The government reopens.

January 30th – The State of the Uniom …err Union address. Trump gets the introduction of a WWF fighter (see Fox’s highlight reel ) and Democrats hold their applause (see CNN’s highlight reel ).

In entertainment

January 28th – The Grammy’s: Where Bruno Mars and Kendrick Lamar cleaned house , James Corden brought down the house , and Hillary Clinton took yet another jab at the White House. And in a reminder that our culture still has a lot of work to do to get our proverbial house in order, Kesha offered a sharp rebuke to the tune of “Prayin’  and Janelle Monáe said, #Timesup.

January 31st – Super blue blood moon. A beautiful overachievement, 150 years in the making . Just like the month of January, the moon decides to pack all sorts of events into a short timeframe.

January 31st – The nation takes a deep breath, and a nap…before heading into month two. To which February said, “Hellooooo, Super Bowl!”

These are just some of the headlining moments of January. We can only guess what’s next. What makes your list of notable January headlines? Share in the comments below.

About PayReel

Producing multimedia content and executing live events can be chaotic. At PayReel , we make sure our clients are able to hire who they want, when they want and that everyone is paid properly. Leave the details up to the PayReel team so you can focus on pulling off a flawless production. Contact us anytime at 303-526-4900 or by emailing us here.

Relax. We got it.

The post January 2018: The Month of Many Mondays appeared first on PayReel .

To view our Partner blog, click here