Presenting a live 110 ‐ minute teleconference with interactive Q&A Government Scrutiny of Misclassified Independent Contractors Correcting Worker Classification Analyzing Payroll Tax Impact Correcting Worker Classification, Analyzing Payroll Tax Impact, and Avoiding Benefits Pitfalls With Leased Employees THURS DAY, JUNE 6, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Mary S Mary S amsa Partner McDermott Will & Emery Chicago amsa, Partner, McDermott Will & Emery , Chicago S tephen D. Erf, Partner, McDermott Will & Emery , Chicago Ruth Wimer, Partner, McDermott Will & Emery , Washington, D.C. Attendees seeking CPE credit must listen to the audio over the telephone. Please refer to the instructions emailed to registrants for dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Government Scrutiny Of Misclassified Independent Contractors June 6, 2013
SPEAKERS SPEAKERS Stephen Erf, Partner Mary K. Samsa, Partner Ruth Wimer, Partner McDermott Will & Emery LLP McDermott Will & Emery LLP McDermott Will & Emery LLP Chicago Office Chicago Office Washington, DC Office (312) 984 ‐ 7637 (312) 984 ‐ 2142 (202) 756 ‐ 8614 serf@mwe.com msamsa@mwe.com Rwimer@mwe.com www.mwe.com 6
Agenda Agenda Implications of misclassification p c o o c c o Current government enforcement environment IRS SS ‐ 8 Program Determining tax owed (Code Section 3509 retroactive relief and Code Determining tax owed (Code Section 3509 retroactive relief and Code Section 530 safe harbor) IRS Voluntary Classification Settlement Program State initiatives Other Issues www.mwe.com 7
Implications of Misclassification Implications of Misclassification www.mwe.com 8
Incentives for Organizations to Treat Workers as Nonemployees By treating its workers as nonemployees, an organization can realize substantial cost savings by avoiding the liability for: b l b d h l b l f Employment taxes, unemployment insurance, and other employer surcharges; Minimum wage and overtime pay (where applicable) under the Fair Labor Standards Act; Employee benefits Employee benefits. Potential exposure for unpaid workers designated as “volunteers” or “interns” Multiple government agencies have an enforcement stake, to the extent that the improper classification of workers as independent contractors causes individuals to be denied the protections provided by social insurance programs (Social Security and Medicare), employment regulatory (S i l S i d M di ) l l provisions, and coverage under employee benefits programs. The IRS, state and local tax authorities have a self ‐ interested agenda to the extent that income tax would normally be withheld at the source from employee wages Most of worker protection statutes only apply to “employees;” and not to contractors, p y pp y p y ; , owners, or partners. www.mwe.com 9
Multiple Stakeholders for Enforcement Of Worker Classification Issues IRS, State and Local tax authorities (where applicable) Employee wages generally subject to income tax withholding as and when paid. • Both IRS/Treasury and Congress view this area as a substantial gap to tax compliance. Employee wages also subject to Social Security and Medicare (“FICA”) taxes: • 2 Components to the FICA tax: (i) Employer’s share of FICA; (ii) Employee’s share of FICA. U.S. Department of Labor and related state employment agencies enforce: Unemployment insurance/tax liability; FLSA ‐ Employee minimum wage and overtime rules; State worker’s compensation insurance; and S a e o e co pe a o u a ce; a d Coverage under employee benefit plans. Individuals/Class of Affected Workers could potentially sue for minimum wages, overtime pay and liquidated damages. www.mwe.com 10
From the 2009 GAO Report From the 2009 GAO Report Table 2: Key Federal and State Agencies Affected by Employee Misclassification Agency Agency Areas potentially affected by employee misclassification DOL Minimum wage, overtime, and child labor Provisions Job-protection and unpaid leave Safety and health protections IRS Federal income and employment (payroll) taxes Department of Health and Medicare benefit payments Human Services DOL, IRS, and the Pension Pension, health, and other employee benefit Benefit Guaranty Corporation plans Equal Employment Opportunity Prohibitions of employment discrimination based Commission on factors such as race, gender, disability, or age National Labor Relations Board The right to organize and bargain collectively Social Security Administration Retirement and disability coverage and payments State agencies Unemployment insurance benefit payments State income and employment taxes Workers’ compensation benefit payments p p y www.mwe.com 11
Governmental Agency Concerns g y If the IRS Concern is that the appropriate revenue is not being collected and remitted If the DOL f h Concern is that workers who technically should be “employees” are not getting the protection of the labor laws enacted for their benefit If the National Labor Relations Board (NLRB) If the National Labor Relations Board (NLRB) Concern is that the right to organize and bargain collectively is being impacted If the Equal Employment Opportunity Commission (EEOC) Concern is that rights of workers to protect themselves against various employment g p g p y discriminations based on factors such as race, gender, disability or age is impacted If the Occupational Health and Safety Administration (OSHA) Concern is enforcement of safety and health protection for employees/workers www.mwe.com 12
IRS: Tax Aspects IRS: Tax Aspects Companies that misclassify underpay federal employment taxes and o p y p y p oy state unemployment taxes and thereby also fail to withhold income taxes otherwise due Estimated $8 Billion in lost revenue Misclassified individuals generally will take tax deductions as independent contractors (to lower their taxes due) which as employees they cannot claim www.mwe.com 13
IRS: Tax Aspects IRS: Tax Aspects IRS determined independent contractor misclassification S p o o o 100% of the FICA taxes (7.65%) PLUS 100% of the FICA taxes you should have paid on the worker behalf (7.65%) PLUS All FUTA tax that should be paid (6.2% of the first $7,000) PLUS ( ) Potential 35% of all wages that were paid to employees misclassified for failure to withhold federal income tax (Code Section 3403) PLUS Potential 20% of all taxes due under the bullet point above that should have o o po o o been withheld but were not due to negligence or intentional disregard (Code Section 6662) www.mwe.com 14
Department of Labor Aspects Department of Labor Aspects The DOL uses a variety of remedies to enforce compliance O y o o o o p • Recommend changes in employment practices to bring the employer into compliance • Injunction proceedings • Payment of any and all back wages due to employees • Willful violators may be prosecuted criminally and fined up to $10,000 A second conviction may result in imprisonment • Employers who willfully or repeatedly violate the minimum wage or Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to civil money penalties of up to $1,100 per violation. www.mwe.com 15
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