Misclassifying Employees To Avoid Health Care Reform In 2014 Can Backfire

While the Affordable Healthcare Act doesn’t go into full effect until 2014, the employee count to determine which employers meet the threshold of 50 full-time employees will be based on 2013 numbers.

That has some employers scrambling now to find ways to stay below the 50 person mark, a number which actually includes employees working 30 or more hours per week.

According to Patricia Nemeth of Detroit-based employment law firm Nemeth Burwell, P.C., it’s one thing to legitimately change employee hours, but another to misclassify workers from employees to independent contractors.

Misclassifying employees can backfire.

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“The goal for employers to keep their staff count below 50 is to avoid being bound by healthcare reform mandates they consider prohibitively expensive, but the liability exposure for misclassifying workers is also significant,” said Nemeth.

Even prior to the passage of health reform, difficult economic conditions were the impetus for employers to use more independent contractors, consultants and contingent workers to meet tighter budget guidelines.

As a result, the Department of Labor, the IRS and a number of state agencies have been questioning the classification of workers in every type of industry for the past several years – and levying fines and ordering back pay reinstatement for misclassified workers. Such financial penalties can cost a single employer hundreds of thousands of dollars.

With the addition of employee insurance mandates, employers may view health care reform as one more reason to reclassify, and sometimes misclassify, employees as non-employees.

At the same time, it’s another reason that federal and state agencies will continue scrutinizing employee classification, and now they are bringing in reinforcements.

Federal Government Will Reach Out Directly To Employees About Job Classification

“Government agencies are no longer going to rely solely on employer provided information. A new federal law is pending that directly asks employees to describe their job duties to ensure the daily tasks and responsibilities are being properly categorized under the exempt/non-exempt classifications defined by the Department of Labor (DOL).

“The DOL is also working to enforce Right to Know regulations under the Fair Labor Standards Act (FLSA) that would require employers to explain each employee’s exempt/non-exempt or independent contractor classification. These efforts by the DOL are directly in line with the department’s five year plan to plan/prevent/protect employees from employer violations,” said Nemeth. “Additionally, agencies such as the EEOC and the IRS are working more closely with each other to address workplace issues in general.”

According to the IRS website, an employee is one who performs services where the employer controls what will be done and how it will be done.

Conversely, an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.

Nemeth says other indicators for employees and independent contractors are:

  • Independent contractors generally set their own hours and schedules, while employees follow employer schedules and work hours
  • Independent contractors follow their own methods and processes, rather than those of an employer
  • Independent contractors may and often do perform services for more than one company
  • Independent contractors generally use their own equipment and supplies

Employers who use a staffing agency or referral agency can also be liable as a joint of co-employer.

“There are no shortcuts to properly classify workers. It should be at the top of the 2013 to-do list for employers regardless of health reform or how close companies are to the 50 employee mark,” Nemeth said.

Learn more here about the definition of an independent contractor according to the IRS.

About Nemeth Burwell, P.C.: Nemeth Burwell specializes in employment litigation, traditional labor law and management consultation for private and public sector employers. It is the largest women-owned law firm in Michigan to exclusively represent management in the prevention, resolution and litigation of labor and employment disputes.

 http://www.nemethburwell.com/news-100.html

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