The Cost of Misclassified Employees

This week the press had tons of stories about how hiring was up and the economy was on the rebound. I stumbled on a story that talked about how few people had filed for unemployment over the last month and discussed how temporary employees were increasing. Reflecting on those articles I realized that contract employment was on the rise as well.

It made sense. An employer could save some money by utilizing temporary and contract employees due to the employee cost being reduced making getting ramped in staffing more affordable. After all contract employees don’t require employee taxes (unemployment and work comp premiums) be paid.

BEWARE!!! Both state and federal governments are cracking down HARD on employers who incorrectly classify an employee as a contractor. The back unpaid income taxes, unemployment compensation and work comp premiums owed for misclassified employees will eat up any savings the practice may have provided the employer. Add to the fact that there are fines, and potential back wages, and the impact of misclassification of employees could cost a small business …everything!

President Obama has sought additional funding to target businesses who misclassify employees and the state governments are not far behind. There are more that 300 new investigators targeting businesses just looking to find misclassified employees. The fines and back wages often run into six figures.

Unlike so many other employment related issues, obtaining protection from the expensive risk of being caught with misclassified employees, is very easy and cost effective. If your business is in the area of Trucking/Transportation, Construction, Manufacturing, IT or Home Health Care, your industry is being looked at very closely. If your business is not one of these industries, you are not immune. Investigators are looking everywhere. When government budgets are so tight, any chance to recoup unpaid funds is high on the government’s priority list.

When was the last time you evaluated how all your employees were classified? When was the last time you reviewed the differences between and employee and independent contractor? When was the last time you thought about your employee hiring practices. 2011 is the year to get it done. Delay and the government just might do it for you at a very high cost, maybe the cost of your business. The cost of a professional independent review of your hiring practices is a fraction of the impact of fines and potentially the loss of your business.

Happy New Year!

Glenn Brown is the Co-Founder and Chairman of the Board of G & J Consultants, LLC. In addition to having directed the HR Department of a health care services company, Glenn is an attorney with 15 years experience assisting businesses of all sizes and industries in complying with employment and labor legal issues. G & J Consultants specializes in providing small and medium sized businesses with traditional HR services as well as compliance with employment laws and regulations.

Will it be a happy new year for your business?

I recently heard that the federal government was hiring more investigators. In addition to those employers who have mis-classified their employees and failed to pay overtime due, the government is looking for employers, who have been lax in their handling of I-9s documenting their employee’s legal right to work in the U.S, who prevent employees from exercising their employment rights, or ignore their employees’ well being.

Just last month the National Labor Relations Board weighed in and is watching how employers handle employees who use social networks to complain about their work, co-worker, bosses and working conditions.

It appears to me, also a small business owner, that unless you are paying close attention to managing your employee relations, the chances of running afoul of any number of regulations, laws or practices is growing easier by the minute. The really frustrating thing is that I seem to spend more time managing my HR than growing my business. HR and employment issues impact every aspect of my business and if you think about for more than a minute, I bet that you can (and do) say the same thing. Thank goodness that I know exactly what I need to do to solve my HR issues. It is my job to keep fully abreast of legislation, court decisions and regulatory adjustments, so I am pretty sure that no “surprise” inspection will cost my business any part of my hard earned income.

Our company employee handbook is up to date and fully compliant with all federal, state and local laws that apply to me and my business. We have in place standard policies and procedures for handling all types of employment issues that may come up. Our paperwork and employee files are current and accurate, our leave policies are consistent and comply with all the leave policies required by the FMLA, ADA and Work comp.

Of all the things that can impact my business I am in control of my employee relations and fully compliant with every law and duty I have to obey as a business. I am ready for 2011. I hope you can say the same thing. Happy New Year!!!

Glenn Brown is the CEO of G & J Consultants, LLC. In addition to having directed the HR Department of a health care services company, Glenn is an attorney with 15 years experience assisting businesses of all sizes and industries in complying with employment and labor legal issues. G & J Consultants specializes in providing small and medium sized businesses with traditional HR services as well as compliance with employment laws and regulations.

I-9 Audit gets cooperative company a million dollar fine

Recently a $1,047,110 fine settlement was reached against a large clothing retailer for violations of the Immigration and Nationality Act. In 2009, the U.S. Immigration and Custom’s Enforcement Office of Homeland Security Investigations put together a plan to reduce the demand for illegal employment opportunities. This has created the greatest number of penalties, both civil and criminal, imposed by ICE in the past year.

The case involved how the clothing company verified the employment eligibility of its employees. The retail store in Michigan had been using an electronic system to verify I-9 information. The investigation found many deficiencies, mostly technology-related. The company was cooperative and have since changed their compliance program. Fortunately, no instances of knowingly hiring someone unauthorized were found, however the company still received over a million dollar fine.