Worker Misclassification

Worker Misclassification

Worker Misclassification Agenda Define misclassification Impact of misclassification Virginia laws regarding misclassification Task Force What is Worker

Misclassification? Treatment by an employing unit of a worker as an independent contractor (or subcontractor) when the worker is in fact an employee. Worker Person who performs work in exchange for remuneration (pay)

Can be an employee or an independent contractor Employing Unit (EU) The business that assigns work to a worker in exchange for payment Does not include a consumer Employee Subject to direction and

control of EU EU determines when / where / how work is performed EU provides tools & materials Is not working in capacity of a business owner/operator Usually paid by time (hourly, weekly, or yearly salary) Independent Contractor

Not subject to direction and control of EU (but EU may set quality standards and deadlines) Owns/operates business Licensing Insurance Usually paid a piece or job rate Usually provides tools/materials Should have a written contract

Employee or Independent Contractor? Some statutory exclusions from employment: truck owner-operators and lessees some agricultural labor some domestic employment fishing & crabbing work performed for spouse, son/daughter, or parent (if worker<21) college students working for their school

interns and student nurses commission-based insurance agents, realtors, and gasoline distributors (wholesale) Employee or Independent Contractor? Statutory exclusions from employment (contd): work/study programs at public or non-profit colleges human services contracted by a commonwealth, city or county human services agency sales personnel who are commissioned based and have a contract newspaper delivery personnel who are commissioned based and have a

contract taxi and sedan drivers courier drivers Employee or Independent Contractor? Statutory exclusions from employment (contd): college students working at camps court reporters cosmetologists (including manicurists) and barbers psychiatrists, therapists, and LCSWs working under contract

prison work (by inmates) Employee or Independent Contractor? Aside from previous exceptions, legal presumption is employee. Presumption is rebuttable Burden is on the employing unit. Standard of proof: preponderance Employee or Independent Contractor?

VEC considers 20 factors (IRS test): 1. Instructions (when, where, how) 2. Training 3. Integration 4. Services rendered personally 5. Hiring/supervising/paying assistants 6. Continuing relationship 7. Set hours of work 8. Full time required 9. Work done on premises

10. Order/sequence set Employee or Independent Contractor? VEC considers 20 factors (IRS test) contd: 11.Reports 12.Payment by hour/week/month 13.Payment of expenses 14.Furnishing of tools/materials 15.Significant investment in facilities 16.Profit or loss

17.Working for more than one business at a time 18.Making services available to general public 19.Right to fire 20.Right to quit Treatment of an Independent Contractor (IC) Proper treatment of an independent contractor by an EU includes: Checking licensing before accepting/considering bid

Soliciting ICs TIN Not exerting more direction/control than is specified in the contract Making timely payments per schedule specified in contract Providing 1099(s) at end of job or end of year Treatment of an Employee Proper treatment of an employee by an EU includes: At commencement of employment:

I-9 W-4 Court-ordered support Virginia New Hire Compliance with Virginia and U.S. minimum wage and overtime rules Treatment of an Employee Employee included with Workers Compensation policy

(accurate description of number and types of employees provided to carrier) Wages reported to VEC for unemployment insurance coverage Payroll withholdings FICA (Social Security and Medicare) State income tax Federal income tax W-2 in January In Fact

What matters most is what is really happening The existence of a W-9, a contract, and a 1099 are indicative but not dispositive. An EU cant convert an employee into an independent contractor by filling out some forms.

Why Does it Matter? Misclassification harms: Workers Law-abiding businesses (competitors) Taxpayers Applicable Virginia Laws Virginia Unemployment Compensation Act (Title

60.2) EU shall report new hires and re-hires to the Virginia New Hire Reporting Center. EU shall request each new hire to disclose child support withholding orders. EU may not require/accept agreement to waive Unemployment Insurance benefits or rights. Violations are Class 1 Misdemeanors (up to 1 year in jail). Applicable Virginia Laws

Fraud Against Taxpayers Act (Title 8.01, Art. 19.1) Presenting a false/fraudulent claim, knowingly making a false statement, or knowingly avoiding an obligation to the Commonwealth is subject to penalty of up to $11,000 plus treble damages. Applicable Virginia Laws Professions and Occupations (Title 54.1)

Contracting or bidding without a license is a Class 1 Misdemeanor. Receiving/considering a bid without first receiving the bidders license is a Class 1 Misdemeanor. Worker who undertakes work without proper license/certificate commits a Class 1 Misdemeanor and is subject to fine of $500/day. Applicable Virginia Laws Tax (Title 58.1)

EU who fails to withhold/submit required withholdings is subject to civil penalty of 6% per month plus interest. Willful failure is a Class 1 Misdemeanor. DOLI (VOSH) An EU with misclassified workers is not entitled to size / good faith reductions when calculating penalties for safety violations. Sources of Compliance Reviews

Complaints Workers Competitors Referrals from other government agencies Random selections 1099 extract information (coming soon) Inter-Agency Task Force on Worker Misclassification and Payroll Fraud

Established in 2014 Members: Secretary of Commerce and Trade (Chair) Virginia Employment Commission Department of Labor and Industry Workers Compensation Commission State Corporations Commission Department of Professional and Occupational Licensing Department of Taxation Office of the Attorney General

Partnership with U.S. Department of Labor As of June 16, 2016, Virginia should be shaded blue, having become the 31st state to enter a MOU with USDOL Information sharing Resource sharing Hot button issue for

USDOL Sec. Tom Perez Source: Questions? Comments? Complaints / Referrals? Contact: Virginia Employment Commission Targeted Audit and Investigative Enforcement Unit

(804) 371-4218 [email protected]

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