IRS reminder: Your contractors have to pass this test, too

IRS reminder: Your contractors have to pass this test, too

independent contractors

Earlier this summer, the DOL issued a statement that most thought laid to rest any argument as to which independent contractor classification test employers should follow. But since then, the IRS has essentially said, “Not so fast.” 

On July 15, 2015, the DOL published an Administrator’s Interpretation letter, penned by DOL Administrator David Weil on how employers should distinguish between employees and contractors and classify accordingly.

To cut to the chase, Weil said employers and courts should use the DOL’s six-factor “economic realities” test to determine whether someone is a true independent contractor or not.

In a nutshell, the test is designed to measure a person’s “economic dependence” on a single business. The greater a person’s dependence on that business, the more likely it is that person’s an employee.

The six factors of a person’s working relationship with a business that are to be evaluated under the test:

  1. The extent to which the work performed is an integral part of the employer’s business
  2. The worker’s opportunity for profit or loss depending on his or her managerial skill
  3. The extent of the relative investments of the employer and the worker
  4. Whether the work performed requires special skills and initiative
  5. The permanency of the relationship, and
  6. The degree of control exercised or retained by the employer.

Weil said no single factor is determinative of an employee’s classification. Instead, all of the factors must be looked at on the whole.

The point of the letter was to help clear up confusion when it comes to how employers are to evaluate employee classifications — something every employer can appreciate.

What the IRS had to say

Unfortunately, the IRS had other thoughts. A month after the DOL issued its interpretation letter the IRS posted a fact sheet on its website entitled Payments to Independent Contractors.

It makes no mention of the DOL’s “economic realities test,” but it does point out what it calls “Common Law Rules” for determining whether someone’s an independent contractor.

They are as follows (taken straight from

  1. Behavioral: Does the business owner control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker’s job controlled by the business owner? (these include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. Type of Relationship: Are there written contracts or employee type benefits such as pension plan, insurance or vacation pay? Will the relationship continue and is the work performed a key aspect of the business?

Answer “yes” to any of these questions, and you’ve likely got an employee on your hands, according to the IRS.

What does this mean for employers?

Despite the DOL’s best efforts to create a singular test for determining independent contractor classifications, the IRS here appears to have undermined the agency’s efforts — although likely not intentionally.

Bottom line: Employers still have two tests with which their worker classifications have to pass muster.

Granted, both the DOL and IRS tests are similar in how they measure work relationships. But they do contain subtle variations.

The best course of action: Run your classifications through both tests. If they pass, great. If not, change work relationships so they do — or simply reclassify the workers in question as employees and compensate them as employees (with tax deductions, benefits, etc.).

This DOL v. IRS issue is an ongoing one that our sister website HR Benefits Alert hashed out in an in-depth — but easy to read — look at the dangers of using independent contractors. Anyone using ICs would be well advised to check it out.

DOL: ‘Most workers are employees’

There’s one more thing you should know when it comes to the feds and courts, and independent contractor usage: Anyone scrutinizing your classifications is likely going to go into the process assuming the person is an employee, and your classification determinations will have to convince them otherwise.

In other words: You’re already behind the eight ball before an audit or investigation begins.

Weil, in his interpretation letter, even made it a point to say this:

“In sum, most workers are employees under the FLSA’s broad definitions. The very broad definition of employment under the FLSA as ‘to suffer or permit to work’ and the Act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.”

Translation: It’s hard to justify that someone you’re paying to perform work isn’t an employee of yours.

Employment law attorney Heather Bussing, does a nice job of explaining why the feds seem so hell-bent on sniffing out worker misclassification and are so inclined to assume many ICs are actually employees. Here’s a hint: It has to do with payroll taxes.

For more HR News, please visit: IRS reminder: Your contractors have to pass this test, too

Source: News from HR Morning

Helping your managers understand their strengths: An offbeat quiz

Every manager can use a quick self-audit now and then.  

Take a look at this quiz, commissioned by, a U.K.-based utility consulting firm. It’s a kind of quirky test designed to help managers determine what their management style is, where their strengths lie and little things to remember when the going gets a little tough.

Be forewarned: Those Brits spell some words funny.

For more HR News, please visit: Helping your managers understand their strengths: An offbeat quiz

Source: News from HR Morning

Huge tab for coal company following religious bias lawsuit

The current price of an employee lawsuit alleging religious discrimination? Right around $600k.

Consolidation Coal Company and its parent company, CONSOL Energy, Inc., were recently ordered to pay a total of $586,860 — inckuding $150,000 in compensatory damages — for forcing a long-time employee to retire because they refused to accommodate his religious beliefs, the EEOC announced.

The EEOC had sued the employer in U.S. District Court for the Northern District of West Virginia after first attempting to reach a settlement through its conciliation process.

According to EEOC’s lawsuit, Beverly R. Butcher, Jr. had worked as a general inside laborer at the companies’ mine in Mannington, W.V., for over 35 years when the mining companies required employees to use a newly installed biometric hand scanner to track employee time and attendance.

Butcher repeatedly informed company officials that submitting to biometric hand scanning violated his sincerely held religious beliefs as an Evangelical Christian. He also wrote a letter to company officials explaining his beliefs about the relationship between hand-scanning technology and the “Mark of the Beast” and the Antichrist discussed in the New Testament’s Book of Revelation, and requesting an exemption from the hand scanning based on his religious beliefs.

In response, the mining companies refused to consider alternate means of tracking Butcher’s time and attendance and informed him he would be disciplined up to and including discharge if he refused to scan his hand, according to the lawsuit.

EEOC charged that Butcher was forced to retire because the companies refused to provide a reasonable accommodation for his religious beliefs.

Last January, a jury decided that the employer had, indeed, violated federal discrimination law. In June, a federal court conducted an evidentiary hearing to determine lost wages and benefits and injunctive relief. On Aug. 21, the court issued its damages order.

For more HR News, please visit: Huge tab for coal company following religious bias lawsuit

Source: News from HR Morning

How Obamacare caused one company’s employee lockout

You’ve probably seen countless studies and articles about how the Affordable Care Act (ACA) could affect employers’ business practices. Well, here’s a real-life example of how one provision of the law is causing major problems.  

As reported in the Pittsburgh Post-Gazette, Allegheny Technologies, a specialty metals producer, recently locked out more than 2,000 union workers because it couldn’t come to terms with the employees’ union, United Steelworkers (USW), over a contract that expired on June 30.

The contract being negotiated was supposed to run through 2018 — the same year Obamacare’s dreaded “Cadillac Tax” is slated to kick in.

Under this ACA provision, companies will be required to pay a 40% excise tax on the value on any healthcare coverage that exceeds $10,200 for single coverage or $27,500 for families in premium costs, beginning in 2018.

And, as the IRS recently clarified, employers may wind up actually paying more than 40% because of the income-tax on reimbursements paid to insurers and TPAs, the entities that are expected to physically pay the tax.

In Allegheny Technologies’ final contract proposal, a four-year deal, the steel producer included a provision that would require new negotiations during the contract period if the company saw that increasing premiums would trigger the Cadillac Tax.

If that scenario were to take place, the contract would be changed so the excise tax threshold wouldn’t be reached. A copy of the proposal is posted on USW’s website.

Allegheny Technologies also proposed a number of steps to avoid triggering the tax, such as switching to health plans that require workers to pay higher deductibles. The proposal calls for union workers at Allegheny to incur a gradual increase in out-of-pocket maximums for family coverage — from $3,000 the first year of the contract to $6,000 the final year.

More lockouts coming?

USW also represents U.S. Steel and the world’s largest steel producer, Arcelor Mittal, both of which have contracts slated to expire by September 1.

And there’s a good chance similar problems could occur if Cadillac Tax exceptions aren’t included in contract negotiations with those companies.

In fact, metal industry analyst John Tumazos said, “I don’t think any of the companies [U.S. Steel and Arcelor Mittal] will sign on for anything that is a Cadillac plan.”

For more HR News, please visit: How Obamacare caused one company’s employee lockout

Source: News from HR Morning

Why, how and when you must grant ADA leave

Why, how and when you must grant ADA leave

FMLA leave

A new compliance nightmare is driving employers batty: administering leave as an accommodation under the ADA. It’s not hard to slip up and put yourself right in the crosshairs of your employees’ attorneys. 

One of the more common mistakes: refusing to let employees take additional leave as an accommodation, believing FMLA and/or a company’s own leave policies provide all the time off required under law — only to find out the hard way that the EEOC or courts disagree.

The reality: If an employee has an ADA-covered disability and requests leave, you’ve got to consider it as an accommodation under the ADA — regardless of whether the employee’s exhausted FMLA leave or exceeded the limits in your leave policy

Employment law attorney Penny C. Wofford from the firm Ogletree Deakins is here to help. In a presentation at SHRM’s 2015 annual conference, she said employers must consider two things when workers request ADA leave:

1. Is it effective?

First, employers have to determine how likely it is that workers will be able to perform all their essential job functions after the leave.

Consider the amount of time off requested versus how confident his or her doctor is that the worker will be able to perform their duties when they return.

An employee is only entitled to leave as an accommodation if it helps him or her get back to performing the essential functions of his or her job (possibly with some other, lesser accommodation).

An important thing to remember: If a worker keeps requiring extensions, it’s less likely that leave is truly an effective accommodation, Wofford says.

2. Is it reasonable?

Employers’ individual leave policies don’t matter much when the ADA is involved.

So if your policy offers six months of leave, and a worker says he or she needs more time off, you still need to consider the option if it would help them to return to work and it doesn’t create an undue hardship.

But there is one time when employers’ leave policies count under the ADA: They affect how much time off a court will consider reasonable for a worker to be off at your organization.

Example: Courts will ask, if it’s not burdensome for workers to be gone six months, per your policy, why was it a hardship for them to be gone another three months to heal?

To assess if a worker’s leave request is unreasonable, employers also need to record specifics about how the worker’s absence is negatively affecting operations. Wofford recommends looking at how the worker’s facility will be affected, for example:

  • Will you need to bring in temporary workers to cover duties? (If so, this tips the scales toward being unreasonable.)
  • Would there be a disproportionate amount of work for other employees? Will it affect those workers’ productivity or their morale? (The bigger the impact, the less reasonable the request is.)

It’s important to remember that each case is different and should be evaluated on its own merits — and financial hardships are hard to justify in court.

4 defensible prevention steps

Additionally, Wofford notes four steps employers can take to support their decisions should they be questioned in court:

  • Be specific with your requests. Ask doctors for estimates on when workers may be able to return to work and how confident they are the person can perform their essential duties when they return.
  • Tell workers what’s expected of them for approval. Spell out how long they have to return forms, how quickly they need to contact you if there’s an issue getting the information and the consequences for not handing in the forms on time.
  • Don’t grant it and forget it. Keep the lines of communication open and establish a return-to-work date or whether the leave can be extended before any leave period runs out.
  • Build wiggle room into leave policies. Let workers know you’ll offer shorter intervals of leave on a case-by-case basis after your other leave policy reaches its limits. This lets you assess the workers’ recovery and cap leave if it becomes unreasonably burdensome.

Cite: “Leave as Reasonable Accommodation: How Much is Enough and is Anything Unreasonable,” a presentation by Penny C. Wofford at the SHRM 2015 Annual Conference.

For more HR News, please visit: Why, how and when you must grant ADA leave

Source: News from HR Morning

Pre-hire assessments have Target Corp. on the hook for $2.8M

The EEOC has found some of Target Corporation’s pre-hire assessments wanting. 

The EEOC investigated the Minneapolis-based retail corporation’s hiring practices after hearing reports of possible violations, and the federal agency claims to have found several things that are illegal.

For starters, the EEOC said three pre-hire employment assessments Target used disproportionately screened out applicants for exempt professional positions based on race and sex. It’s estimated the number of those affected was in the four-figure range.

The EEOC said the tests weren’t sufficiently “job-related and consistent with business necessity” to pass muster under the Civil Rights Act.

To make matters worse, the EEOC said one of those assessments also violated the ADA. It said that assessment was performed by psychologists and qualified as a pre-employment medical exam, which are prohibited by the ADA. Only after being given an offer of employment can an employee be asked to undergo a medical exam, and it has to either be part of a voluntary wellness program or “job-related and consistent with business necessity.”

Finally, the EEOC claimed that Target committed record-keeping violations by failing to maintain records sufficient enough to assess the impact of its hiring procedures.

The EEOC likely would’ve filed suit against Target for the alleged offenses, but it’s first required to enter into its conciliation process.

During that process, Target agreed to settle for $2.8 million, which will be distributed to those individuals deemed to have been adversely affected by its hiring processes.

Target spokesperson Molly Snyder told Fortune that the company decided to settle with the EEOC because of the significant resources that would be required if the case were to go to court.

As part of the agreement, Target has said it will also:

  • not use the assessments in question again
  • change its applicant tracking system to ensure the collection of data is sufficient to assess adverse impact
  • perform a predictive validity study for all assessments currently in use and any new assessments it expects to use in the future
  • monitor assessments for adverse impact, and
  • provide the EEOC with a detailed summary of the company’s studies and any adverse impact analysis it completes.

“We applaud Target for taking corrective action to ensure the validity of their hiring practices,” said EEOC Chair Jenny R. Yang in a statement released by the agency.  “This resolution demonstrates the benefits of working with EEOC and serves as a model for businesses committed to effective and lawful selection procedures.”

Snyder went on to tell Fortune that despite the fact that the EEOC found tests that had potential adverse impact on applicants, no disparities in Target’s hiring practices were found.

For more HR News, please visit: Pre-hire assessments have Target Corp. on the hook for .8M

Source: News from HR Morning

What you can — and can’t — do with leftover FSA contributions

When employees leave unused FSA funds on the table, that money goes to the company. But there are a number of rules that dictate how those funds can be used.   

And not following those rules can be costly.

‘Exclusive Benefit Rule’

According to the IRS’ proposed regs on the subject, employee FSA forfeitures can be:

  • retained by the company
  • used to reduce required salary reduction amounts for the immediately
  • following plan year, on a reasonable and uniform basis
  • used to increase the annual coverage amount, or
  • used to defray administrative expenses.

While these options are pretty straightforward, employers also need to be aware of the ERISA impact.

The majority (but not all) of health flex spending accounts are subject to ERISA’s fiduciary duty rules, which include the “exclusive benefit rule.”

That rule essentially says that plan assets – in this case leftover FSA funds – must be used for the exclusive purpose of providing benefits to participants/beneficiaries and paying reasonable administration expenses.

So despite IRS regs on retaining funds, the exclusive benefit rule may create situations where firms aren’t able to simply retain this money.

Handling the leftovers

After determining whether the FSA is subject to ERISA, employers should take these steps with leftover funds.

First, review the plan document. It may spell out exactly how forfeitures should be handled and what steps you must take.

The next step is documentation. If you decide to use to workers’ leftover funds to pay FSA administration expenses, you’ll need detailed records showing exactly how the payments relate to the FSA.

You’ll also want documentation on the nature/amount of the expenses and the date they were incurred and paid.

For more HR News, please visit: What you can — and can’t — do with leftover FSA contributions

Source: News from HR Morning

Three keys to successful recognition programs

Employee recognition programs have kind of become old hat these days. So how can you pump new life into this morale-building effort?

The most common characteristics of high-ROI recognition programs — regardless of their monentary value — are their spontaneity and perceived value by employees themselves.

In reality, the cost of some of most effective spot awards and bonuses often amount to less than 1% of base pay — and the awards don’t even have to be given in cash.

Less sense of entitlement

Part of the problem with traditional end-of-year or quarterly bonuses (apart from the fact that they cost employers an average of 10% of base pay) is that employees expect to receive them for reaching certain goals.

Sometimes employees simply expect it no matter what. For example, at many firms, an annual holiday bonus is viewed as an entitlement and people inevitably grumble that it’s not high enough. On the flip side, with spontaneous awards and bonuses, workers are often pleasantly surprised.

Here’s what the experts suggest to make the latter type of awards work, even if they’re lower in cost:

1. Creativity is crucial

The most effective programs typically give out awards weekly or monthly. To avoid over-stretching the budget – and avoid a ho-hum attitude setting in – creativity is a must.

One way that never gets old: combining time off with a second, non-cash award. Example: One firm gives a half-day off in combo with movie passes once a month.

Another, at weekly staff meetings, holds a random drawing for a dinner gift certificate, plus permission to leave work early once.

2. Make it personal

Rewards have more lasting impact when they’re geared to people’s personal needs or interests. Two examples:

  • one firm with many foreign-born, low-wage employees awards a $20 pre-paid phone card after 90 days of service, and a $100 card for outstanding work, and
  • another company with a lot of sports nuts took a few top-performers to a ball game. Managers said it was the best $200 they’ve ever spent in terms of creating ongoing enthusiasm.

3. Add structure

The awards may seem spur of the moment, but top programs have a fixed budget and structure set before anything is handed out. Example: One retail firm awards “points” for good work. Folks can then trade in their points for store merchandise.

By letting people bank points for more valuable rewards, the employer saw a solid jump in retention.

Other organizations prefer to let employees reward each other. For instance, a small healthcare provider keeps a “goodies box” onsite – paid for in petty cash and stocked by employees themselves.

When someone spots a co-worker going the extra mile, he or she pulls out a prize and awards it. The program is a huge hit: It’s immediate and personal, yet structured.

For more HR News, please visit: Three keys to successful recognition programs

Source: News from HR Morning

Top 10 Learning Management Software of 2015 – Get Free Quotes & Expert Advice

Learning Management Systems (LMS) software helps educational institutions and businesses better manage online learning programs. Using a LMS, organizations can create curricula to educate students and/or employees, and allow them to demonstrate competencies or gain certification in areas relevant to their role. Analytics and reporting functionality also gives organizations more insight into training or learning program success. If you need help making an informed buying decision for your organization, let the unbiased experts at Software Advice help. They’ve reviewed nearly 40 learning management systems and can help you find the vendors that best match your needs.

Learn more!  

For more HR News, please visit: Top 10 Learning Management Software of 2015 – Get Free Quotes & Expert Advice

Source: News from HR Morning

Top 10 Payroll Software Software of 2015 – Get Free Quotes & Expert Advice

If your company is tracking employee information and processing payments manually, payroll solutions could save you time, money and a lot of headaches by mitigating compliance risks. There are many payroll solutions available to streamline the task, but determining which solution is best for you can be overwhelming. Software Advice’s team of independent experts have reviewed 30 payroll software systems and are ready to provide you with reviews and price quotes from the vendors that best meet your needs.

Learn more!  

For more HR News, please visit: Top 10 Payroll Software Software of 2015 – Get Free Quotes & Expert Advice

Source: News from HR Morning