This is a follow-up to our November 20 post on the difficulty of distinguishing independent contractors from employees. The distinction is of course important not only for payroll tax purposes, but also for other employer expenses, including unemployment taxes and workers' compensation.
As we have discussed before, however, the complicated, multi-factor balancing test used by the IRS in its worker classification analysis can be challenging for employers to apply.
In this post, let's take an example of the type of scenario in which worker classification issues can arise.
Let’s say a communications company has a salaried workforce that includes technicians. The technicians are expected to work 10 hours a day, five days a week, for their salary.
Because the company is growing, it hires technicians in multiple states. Eventually, however, the company faces issues regarding how overtime pay is to be handled in various states.
This happens because the federal government and various states differ on what constitutes overtime. In California, overtime (OT) is calculated according to an 8-hour day. This differs from most states. In most states, OT is based on work beyond a 40-hour week.
In other words, just as the difference between “employees” and “contractors” is difficult to articulate for tax purposes, so too is the difference between “exempt” and “nonexempt” for purposes of labor law.
And yet Congress held a hearing last a month on a proposal to extend the Fair Labor Standards Act (FLSA) to worker classification cases.
The bill was introduced by Sen. Bob Casey of Pennsylvania. In essence, the bill would make misclassification of employees not only a tax issue, but a labor violation under the FLSA.
Source: Albany Times-Union, "Handling the people side of business," Rose Miller, Dec. 2, 2013