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Everything CPAs Need to Know about Employment
Law (almost)2014 Update
Presented to:December 2014 CPE Expo
Sheila GladstoneEmployers’ Lawyer
512.322.5863sgladstone@lglawfirm.
com
816 Congress Avenue Suite 1900
Austin, Texas 78701www.lglawfirm.com
Definition of “Spouse” after DOMA Ruling Independent Contractor Misclassification:
The Continuing Saga FLSA Compliance Issues for “Good”
Employers
What’s New?
Defense of Marriage Act: 1996 US v. Windsor 6/26/13 – IRS case
◦ USSC Strikes down DOMA
◦ NY Marriage
◦ $363K estate tax refund sought
◦ Couched in states’ rights
Hollingsworth v. Perry 6/26/13◦ USSC passes on California Prop 8
◦ California refused to defend
◦ Proponants have no standing – those affected must sue
USSC this year let stand decisions invalidating state laws◦ New 6th Cir decision creates split in circuits; still awaiting 5th Cir Ruling
on Texas
DOMA and State Law Background Review
IRS Aug 2013 Announcement◦ If legally married anywhere, “spouse” for tax purposes
◦ Residence irrelevant
DOL◦ OLD LAW: FMLA – Aug 2013 “Spouse” defined under state law in
the state where employee resides
◦ FMLA UPDATE: - Aug 2014 Rulemaking comment deadline to change to: a) “state of celebration” or b) if outside states, legal in at least one state Change likely in early 2015
◦ ERISA - If legally married anywhere, “spouse” for benefits purposes
◦ Secretary of Labor Sept 2013 announcement: All agency leaders directed to implement Windsor “in a way that
provides maximum protection for workers and their families
Definition of “Spouse”
But he said he didn’t want to be an employee …………………..
Misclassification of Independent Contractors
Titles are meaningless◦Independent contractor
◦Consultant
◦Contingent worker
◦Contract Worker
◦Temp Not employee’s choice Can’t contract around the law Part-time does not mean independent
An Employee by Any Other Name . . .
Major revenue priority IRS and DOL, with TWC helping IRS says:
◦ 50 % of independent contractors (ICs) misclassified
◦ 70 % of ICs don’t pay their taxes Translates to billions for fed, states,
cities DOL cites huge overtime and SSA losses
to misclassified workers
New and Improved Crackdown
6,000 random audits of organizations that utilize independent contractors.
To quantify the revenue shortfalls created by the misclassification of employees.
IRS: ◦ Results were “staggering” ◦ Estimates employers are underpaying $14 billion
annually◦ Estimates efforts will bring in an extra $7 billion
cash from tax revenues.
IRS Initiative: 2009 - 2012
100% back taxes due (including the employee’s share) plus penalties / interest
fines for failing to file or send W2s and/or 1099s
fines for willful misclassification fines for delinquency, fraud, etc. Single violation may trigger a company-
wide audit of all pay and classification status.
IRS Penalties for Misclassification
Eligibility:◦ Must have consistently misclassified◦ Filed 1099s for last three years◦ Pay about one percent of wages paid to
misclassified workers in past year – no penalties or interest with form 8952
◦ Immediate reclassification Risks:
◦ No amnesty from other agencies◦ Consequences of program rejection unclear
September 2011 Voluntary Classification Settlement Program
September 2011 – Original Initiative on Misclassification
DOL’s collected millions in back wages July 2013 – Reconfirmed misclassification
still top priority September 15, 2014: $10M + grant to 19
states to ferret out misclassification◦ Guess who got the most?◦ Texas got $500K grant, plus ◦ Texas one of 4 states to get “high performance
bonus” – much higher to Texas: $775,529K
DOL’s 2014 Grants
TWC must share misclassification findings with IRS and DOL because of federal funding for unemployment
TWC continually going after businesses with traditionally-approved independent contractor structure
Waiving penalties when TWC approved it just two years ago – so not much $$ - incentive to change structure
Full Commission ruling unanimously against employers
What’s the TWC doing to earn bonus?
TWC has reduced IC tests down to one factor: “integral to the business”
Supposed to look at all factors◦ Behavioral control
◦ Financial control
◦ Relationship of the parties
◦ Type of work performed
Exception: If contractor has LLC and its own TWC account/employees properly classified
Whole businesses are being restructured◦ Therapists
◦ Tutors
◦ Music teachers
◦ Accountants
◦ EXOTIC DANCERS??
On what is TWC basing these rulings?
And consequences are worse, so may be worth fighting
DOL: “Economic realities” test IRS: looking more at relationship and control
IRS, DOL and courts are more balanced
Conduct self audit Use legal counsel to maintain privilege Decide on VWCSP Don’t rely on worker’s preference or IC
agreement Employee status can’t be waived Pay particular attention to agreements with
individuals◦ Business to Business is safest◦ Is someone withholding taxes?◦ Does contractor legally employ employees?
How to Respond?
Cannot always avoid employee classification simply by hiring a worker through a temp agency
Raises ERISA issues if temp worker no longer fits the “temporary” designation
Using Temp Agencies
Keep an eye on lengthy “temporary” assignments”
If you decide on independent contractor status:• Strong IC agreement• Work not the same as company business• Engage different contractors• Invoice on IC’s letterhead that breaks down their time
and the work performed• Limit length of time• Use visitor/contractor badges• Don’t give ICs company business cards or allow them to
use company letterhead• Limit supervision & leave details to contractor• No reimbursement for overhead expenses• Do business with a business – careful of sole proprietors
• Try to make individual workers someone’s employee
After-hours work because of mobile communications
Calculating regular rate of pay/overtime after bonuses and commissions◦ Non-discretionary/formula bonuses◦ Holiday gifts◦ Post pay-period commissions
Automatic time reporting systems◦ Remember to back-correct if extra hours worked
or lunch period skipped
FLSA traps that catch the best employers
