It's probably not smart. This is especially the case when it's the government that comes knocking on the door with a "good deal". In this case, the offer is especially troubling because it's coming from the IRS, an agency which rarely offers a good deal to anybody.
Those of you wedded to the idea of using independent contractors in lieu of employees, pay attention. That goes for those of you just using independent contractors, too. What's happening right now in Washington with respect to this issue is a one-two punch involving the Department of Labor and the IRS. If this diabolical combination doesn't get your attention, nothing will.
DOL recently announced that it was going to start paying a lot more attention to companies making use of independent contractors. There are any number of advantages for a company to use independent contractors, rather than employees, in its day-to-day operations. For one thing, the employer is not responsible for wage tax withholdings, unemployment insurance payments, workers compensation insurance, and a host of other expenses that are required when someone is formally part of the company workforce. In addition, virtually all employment laws apply only to "employees"; independent contractors typically can't make employment-related claims against the company using their services. Given the lack of protection provided to most independent contractors, and more importantly the lack of tax revenue that results from the use of independent contractors, state and federal tax and employment agencies have long focused on ferreting out improper contractor classifications.
The Department of Labor emphasis involves a teaming approach between the federal and state employment agencies to ensure that companies are not calling people independent contractors who are really employees. This classification issue is a complex factual analysis involving as many as 20 separate factors, and varies from state to state. Generally speaking, however, the key factor is who is controlling the work. If the individual worker is in control of how the job is performed, and is not integrated any more than necessary into the company structure, there's a good argument that she is a contractor and not an employee. Moreover, companies employing independent contractors must observe a variety of tax niceties, such as the use of an IRS Form 1099 for payment records. DOL and the IRS are going to be looking very carefully at those niceties, and how work is controlled.
At roughly the same time, the IRS announced a "voluntary settlement program" designed to encourage companies making use of workers in a questionable independent contractor status to reclassify these workers as employees. In exchange for the voluntary acknowledgment by the employer that its contractors are actually employees, the IRS will forgo a multiyear assessment of employment taxes and penalties, and instead use a single year assessment with reduced rates. The employer must agree to treat all of these reclassified contractors as employees from that point forward, of course.
Here's where it gets really troubling, from my perspective. The IRS Announcement says nothing about the limitation of state tax liability, or any other employment law . In other words, an employer that agrees to reclassify its employees under this program might be able to limit its federal tax liability to a single year, but is not protected from its individual state tax agencies coming in and assessing multiyear tax liability reaching back however far the state law allows. This would include unemployment insurance contribution taxes (and the associated penalties), workers compensation insurance contributions (and the associated penalties), and whatever other contributions based on employee status the host state happens to require. Even more troubling is the fact that this reclassification does not waive any liability under the Fair Labor Standards Act, Title VII, the Family and Medical Leave Act or any federal or state EEO laws.
Conceivably, an employer that reclassified an employee under the IRS program could find itself suddenly being sued for failure to pay overtime wages over the last two years (typically not an arrangement found in independent contractor agreements), or for failure to reinstate what it thought was a contractor following an FMLA qualifying absence six months ago, or for the toleration of a hostile work environment, or for an Equal Pay Act violation, or what have you. It's perfectly possible that an employer that reclassified its employees under this IRS provision would the next day find itself facing an audit by federal and state Department of Labor personnel, who have been tipped off by the IRS filing.
So before you jump at this "get out of jail almost free" offer from the feds, look at the affected workforce carefully. You might find yourself in trouble far more costly than any potential savings under this initiative.
Tuesday, September 27, 2011
A Complete Failure
If this is the best the Obama people can do, then they should quit: http://abcnews.go.com/Business/Economy/geithner-good-chance-jobs-act-pass/story?id=14609951
$200,000 for each job created? And the Treasury Secretary thinks this is the best, no, the only alternative? Yikes.
And take a look at this assessment of ObamaCare by the doctors who will have to implement it: http://www.forbes.com/sites/sallypipes/2011/09/26/doctor-and-ama-split-over-contentious-issue-of-obamacare/
Every healthcare professional I've talked to says pretty much the same thing. The PPACA is a looming disaster that will not lower costs (it's not designed to) or improve the quality of healthcare (it's not designed to do that, either). For employers, it will effectively end health insurance coverage by making it too expensive for all but the richest companies. It's not just a slippery slope to a government run, single source system, it's a cliff.
$200,000 for each job created? And the Treasury Secretary thinks this is the best, no, the only alternative? Yikes.
And take a look at this assessment of ObamaCare by the doctors who will have to implement it: http://www.forbes.com/sites/sallypipes/2011/09/26/doctor-and-ama-split-over-contentious-issue-of-obamacare/
Every healthcare professional I've talked to says pretty much the same thing. The PPACA is a looming disaster that will not lower costs (it's not designed to) or improve the quality of healthcare (it's not designed to do that, either). For employers, it will effectively end health insurance coverage by making it too expensive for all but the richest companies. It's not just a slippery slope to a government run, single source system, it's a cliff.
Friday, September 23, 2011
A Quick Discrimination Reminder--Concern for Pension Values is Not Discriminatory
A recent case out of the Second Circuit is a valuable reminder that in dealing with an older workforce, an employer can justify its employment decisions based on factors that are closely linked to age and seniority. The decision issued as a Summary Order, which has no precedential effect under Second Circuit rules, but nevertheless provides useful guidance.
The pertinent facts are fairly simple. New York City's Human Resources Administration unilaterally reduced the overtime hours of a long-term employee after he appeared on a list of New York City's top 50 overtime earners (a politically unpopular distinction for any employee) and because the employee had become eligible for retirement. Of particular concern to the City was the fact that the employee's pension benefits would be based on his compensation for his last 12 months of work. Because of this contractual provision, the effect of the employee's typical heavy overtime use would be a significant increase in the value of his pension. Accordingly, the City acted to save money on the employee's pension.
Citing the US Supreme Court Hazen Paper case, the Second Circuit ratified the employer's decision to reduce the hours, even though it was based in large part on a factor with a significant age element. "An employment decision motivated by pension costs, even when strongly correlated with age, is not an ADEA violation."
In short, an employer can take an adverse employment action based on purely economic factors, as long as those factors are not a substitute for age discrimination. Important advice, given the nature of the US workforce.
The pertinent facts are fairly simple. New York City's Human Resources Administration unilaterally reduced the overtime hours of a long-term employee after he appeared on a list of New York City's top 50 overtime earners (a politically unpopular distinction for any employee) and because the employee had become eligible for retirement. Of particular concern to the City was the fact that the employee's pension benefits would be based on his compensation for his last 12 months of work. Because of this contractual provision, the effect of the employee's typical heavy overtime use would be a significant increase in the value of his pension. Accordingly, the City acted to save money on the employee's pension.
Citing the US Supreme Court Hazen Paper case, the Second Circuit ratified the employer's decision to reduce the hours, even though it was based in large part on a factor with a significant age element. "An employment decision motivated by pension costs, even when strongly correlated with age, is not an ADEA violation."
In short, an employer can take an adverse employment action based on purely economic factors, as long as those factors are not a substitute for age discrimination. Important advice, given the nature of the US workforce.
Paying College Athletes?
It's been a particularly brutal off-season for college football, with scandals at North Carolina, Ohio State, and Miami making plenty of headlines. This comes on top of the scandals that occurred in-season last year, including the heavily compensated recruitment of Cam Newton, presently enjoying a spectacular NFL debut.
And now, on top of the NCAA investigations, we have the shameless, but thoroughly understandable, pursuit of the big bucks that is conference realignment. I really think the seeds for this were set 25 years ago, when Notre Dame got its own TV contract with NBC. Once some other big football schools realized that they could cut separate deals for their games with networks, notably ESPN, and keep all that revenue for themselves, the traditional loyalty to conferences, and the interlocking relationships that made the conference alignments so secure, began to fall apart. There is no reason for Texas A&M, for example, to stay in a Big 12 conference dominated by the University of Texas Longhorn network. Similarly, BYU-a major draw in the Mountain West-saw no reason to be saddled with the small-market woes of Wyoming, Colorado State, Air Force, and New Mexico, and set out on its own. I think wrathful football gods (there are potentially many in Mormonism) may still smite BYU, but the message to other schools was clear: If you are not strong enough to have your own television network, you'd better be aligned with other schools of caliber and heft in order to compete in the sports marketing world.
As the mercenary nature of college football becomes clearer (and let me be clear, I'm under no illusion that the nature of college football has changed in the slightest in the last hundred years or so-it's always been about the money; it's just now there is a lot more of it, and it's harder to hide the machinations of the schools and the players), sportswriters start revisiting the idea of paying college athletes who, after all, are the people generating all this revenue. In other words, given that they are bringing in so much dough, shouldn't these players be treated like employees?
By any comparison, the numbers associated with big-time college athletics (i.e. football and basketball, the major revenue sports) are significant. One study reported that the average Football Bowl Subdivision player is worth about $121,000 per year based on the value of revenues received by NFL players. It's even worse for basketball, a Division I college basketball player, using the NBA's now expired pay system is worth about $265,000 per year.
But treating these players like employees, rather than "student-athletes" has some troubling ramifications. Things like workers compensation coverage, unemployment compensation coverage, unionization, etc. start coming up very quickly once you start down the slippery slope. Moreover, the payout suggestions that I've heard are ludicrous, because even the most generous student athlete payment plan doesn't approach what many of these kids receive from agents, runners, and starstruck alumni.
In other words, paying college football or basketball players is not going to reduce college recruiting and money scandals unless we are prepared to pay them at something approximating the going rate for their celebrity. And that going rate, ladies and gentlemen, is really high. I'm talking Cadillac Escalade/Jaguar XJL/tricked out Hummer -land. Just to get Cam Newton in school apparently cost somebody close to $200,000. And that was before he started lighting up the SEC.
So let's approach this problem realistically-giving players a living stipend of $300 a month is not going to cut down on the sale of uniforms, favors, hookers, flashy cars, and every other type of bling imaginable. If anything, a small payment would likely make the situation worse. At least at this point, the kids know they are not supposed to be receiving money. Once the system agrees to give them something, it then becomes a matter of degree, rather than a prohibition. See Winston Churchill's classic put down over haggling about price for a more salacious explanation.
And, for whatever reason, the courts are not proving to be as friendly to the idea of these players being able to control their own likeness (like an employee could) as we might hope. Electronic Arts just won a major victory in a lawsuit alleging it improperly used a college player's likeness in sports games without his permission. A federal district court judge determined that the game maker had a First Amendment right to use the player's likeness, which outweighed his individual right to control its marketing. I think this is a terrible decision, and one that may not hold up on appeal, but it's currently occupying the space in this area.
The situation is not going to go away. The NCAA does not have the high ground here, financially or morally, and I think it's only a matter of time before teams now setting up their own conferences start setting up their own eligibility rules, as well. Stay tuned.
And now, on top of the NCAA investigations, we have the shameless, but thoroughly understandable, pursuit of the big bucks that is conference realignment. I really think the seeds for this were set 25 years ago, when Notre Dame got its own TV contract with NBC. Once some other big football schools realized that they could cut separate deals for their games with networks, notably ESPN, and keep all that revenue for themselves, the traditional loyalty to conferences, and the interlocking relationships that made the conference alignments so secure, began to fall apart. There is no reason for Texas A&M, for example, to stay in a Big 12 conference dominated by the University of Texas Longhorn network. Similarly, BYU-a major draw in the Mountain West-saw no reason to be saddled with the small-market woes of Wyoming, Colorado State, Air Force, and New Mexico, and set out on its own. I think wrathful football gods (there are potentially many in Mormonism) may still smite BYU, but the message to other schools was clear: If you are not strong enough to have your own television network, you'd better be aligned with other schools of caliber and heft in order to compete in the sports marketing world.
As the mercenary nature of college football becomes clearer (and let me be clear, I'm under no illusion that the nature of college football has changed in the slightest in the last hundred years or so-it's always been about the money; it's just now there is a lot more of it, and it's harder to hide the machinations of the schools and the players), sportswriters start revisiting the idea of paying college athletes who, after all, are the people generating all this revenue. In other words, given that they are bringing in so much dough, shouldn't these players be treated like employees?
By any comparison, the numbers associated with big-time college athletics (i.e. football and basketball, the major revenue sports) are significant. One study reported that the average Football Bowl Subdivision player is worth about $121,000 per year based on the value of revenues received by NFL players. It's even worse for basketball, a Division I college basketball player, using the NBA's now expired pay system is worth about $265,000 per year.
But treating these players like employees, rather than "student-athletes" has some troubling ramifications. Things like workers compensation coverage, unemployment compensation coverage, unionization, etc. start coming up very quickly once you start down the slippery slope. Moreover, the payout suggestions that I've heard are ludicrous, because even the most generous student athlete payment plan doesn't approach what many of these kids receive from agents, runners, and starstruck alumni.
In other words, paying college football or basketball players is not going to reduce college recruiting and money scandals unless we are prepared to pay them at something approximating the going rate for their celebrity. And that going rate, ladies and gentlemen, is really high. I'm talking Cadillac Escalade/Jaguar XJL/tricked out Hummer -land. Just to get Cam Newton in school apparently cost somebody close to $200,000. And that was before he started lighting up the SEC.
So let's approach this problem realistically-giving players a living stipend of $300 a month is not going to cut down on the sale of uniforms, favors, hookers, flashy cars, and every other type of bling imaginable. If anything, a small payment would likely make the situation worse. At least at this point, the kids know they are not supposed to be receiving money. Once the system agrees to give them something, it then becomes a matter of degree, rather than a prohibition. See Winston Churchill's classic put down over haggling about price for a more salacious explanation.
And, for whatever reason, the courts are not proving to be as friendly to the idea of these players being able to control their own likeness (like an employee could) as we might hope. Electronic Arts just won a major victory in a lawsuit alleging it improperly used a college player's likeness in sports games without his permission. A federal district court judge determined that the game maker had a First Amendment right to use the player's likeness, which outweighed his individual right to control its marketing. I think this is a terrible decision, and one that may not hold up on appeal, but it's currently occupying the space in this area.
The situation is not going to go away. The NCAA does not have the high ground here, financially or morally, and I think it's only a matter of time before teams now setting up their own conferences start setting up their own eligibility rules, as well. Stay tuned.
Wednesday, September 21, 2011
The Public Fisk and Public Employee Unions
You would be hard-pressed to find a more graphic example of the incestuous and symbiotic relationship between public employee unions and the governments that oversee them than the situation described in the Chicago Tribune's lead story today. Because of the secretive and cloaked process surrounding Illinois state politics, it may not be possible to determine exactly how a few lines of state law were altered in 1991 to benefit public employee union leaders, but the effect today is monstrous: 23 retired union leaders stand to collect more than $56 million from Illinois' overstressed public employee pension fund. In fact, the pensions they are receiving far outstrip the average public employee pension by a factor of 3 to 1. The trade-off, of course, is guaranteed employment in the form of votes for the politicians that orchestrated this stealth wealth transfer.
The more exposure these types of connections receive, such as the ripoff of Wisconsin taxpayers by the state teachers union benefit plan currently being revealed by the contentious revision in WI state law, the better. Local governments' budget woes are quickly making these bloated union financial payouts an unaffordable luxury.
PS-anybody catch the repeated negative references to public employee union strikes, and their effect, in the movie Contagion? Highly unusual for the normally liberal Hollywood worldview, I thought.
UPDATE: The payoff situation is even worse than originally reported--it seems Chicago management brought back a favored union leader for one day of work in 1994, then phonied up an indefinite leave status, so that he could reap his almost $160,000 retirement pension.
The more exposure these types of connections receive, such as the ripoff of Wisconsin taxpayers by the state teachers union benefit plan currently being revealed by the contentious revision in WI state law, the better. Local governments' budget woes are quickly making these bloated union financial payouts an unaffordable luxury.
PS-anybody catch the repeated negative references to public employee union strikes, and their effect, in the movie Contagion? Highly unusual for the normally liberal Hollywood worldview, I thought.
UPDATE: The payoff situation is even worse than originally reported--it seems Chicago management brought back a favored union leader for one day of work in 1994, then phonied up an indefinite leave status, so that he could reap his almost $160,000 retirement pension.
Monday, September 19, 2011
A Risk That I Suspect Was Not in the Job Description
After watching the debacle that was the Amanda Knox trial, and retrial, there's very little about the Italian justice system that should really surprise anyone.
Well, maybe this.
A group of Italian geologists are being criminally prosecuted (with attending civil liability a possibility, as well) for failing to predict an earthquake in 2009.
The quotes in the associated story are almost comical. The Italian prosecutors, as well as the citizens of the destroyed town who are seeking hundreds of millions of dollars in damages from six leading geophysicists and one government official, all say they "know" that earthquakes can't be predicted. What they claim to be suing for is the negligence of the scientists in evaluating and communicating specific risks about potential events to the local population.
Well, I am not versed in Italian jurisprudence, but assessing and adequately warning about specific risks sounds an awful lot like prediction, at least to my untrained ear. And anyway, it wasn't like this thing just happened out of the blue-the village had been subject to shocks and low-level tremors over a period of months leading up to the big one. The town itself had been effectively leveled in 1703 by strong earthquake, comparable to the one that struck in 2009.
The government actually held a meeting in the town of a so-called risks commission to talk about the swarm of smaller quakes and the likely effect. Apparently the information disseminated was scientifically correct, including a statement by one of the geologists that even though there did not appear to be a big risk at this point, since the town was located in a major earthquake zone, no one could be sure. Unfortunately, what a government official conveyed at a press conference once the scientists had finished speaking was a little more definitive-indicating that there was virtually no danger, and that the swarm of smaller quakes was dissipating potential earthquake energy. That assessment, even according to the scientists on the commission, was incorrect.
It's a little reminiscent of the movie Jaws, where the mayor of the town is telling everyone it's safe to go to the beaches while the scientists know that the great white shark is out there selecting a chianti to go with its next meal.
The case will have interesting ramifications. Is it safer for the scientists now to say nothing from this point forward? What exactly are their duties, especially since this national risk commission relies on scientific estimates to make judgments about buildings, transportation, and other high-risk construction? Sovereign immunity would almost certainly bar such an action here, but given our lawsuit craziness, even a lawsuit like this is not impossible. I could just see a wave of federal court filings after California falls into the ocean, for example. Sounds like a situation requiring no-fault insurance.
Well, maybe this.
A group of Italian geologists are being criminally prosecuted (with attending civil liability a possibility, as well) for failing to predict an earthquake in 2009.
The quotes in the associated story are almost comical. The Italian prosecutors, as well as the citizens of the destroyed town who are seeking hundreds of millions of dollars in damages from six leading geophysicists and one government official, all say they "know" that earthquakes can't be predicted. What they claim to be suing for is the negligence of the scientists in evaluating and communicating specific risks about potential events to the local population.
Well, I am not versed in Italian jurisprudence, but assessing and adequately warning about specific risks sounds an awful lot like prediction, at least to my untrained ear. And anyway, it wasn't like this thing just happened out of the blue-the village had been subject to shocks and low-level tremors over a period of months leading up to the big one. The town itself had been effectively leveled in 1703 by strong earthquake, comparable to the one that struck in 2009.
The government actually held a meeting in the town of a so-called risks commission to talk about the swarm of smaller quakes and the likely effect. Apparently the information disseminated was scientifically correct, including a statement by one of the geologists that even though there did not appear to be a big risk at this point, since the town was located in a major earthquake zone, no one could be sure. Unfortunately, what a government official conveyed at a press conference once the scientists had finished speaking was a little more definitive-indicating that there was virtually no danger, and that the swarm of smaller quakes was dissipating potential earthquake energy. That assessment, even according to the scientists on the commission, was incorrect.
It's a little reminiscent of the movie Jaws, where the mayor of the town is telling everyone it's safe to go to the beaches while the scientists know that the great white shark is out there selecting a chianti to go with its next meal.
The case will have interesting ramifications. Is it safer for the scientists now to say nothing from this point forward? What exactly are their duties, especially since this national risk commission relies on scientific estimates to make judgments about buildings, transportation, and other high-risk construction? Sovereign immunity would almost certainly bar such an action here, but given our lawsuit craziness, even a lawsuit like this is not impossible. I could just see a wave of federal court filings after California falls into the ocean, for example. Sounds like a situation requiring no-fault insurance.
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