Now that we have discussed our economy and labor (the last series of posts thatran this week from Monday through Wednesday), we should consider one or two more big issues. Who is an employee- and whose employee are you.
Most of you – those of you who run companies- know that there are financial repercussions should you mis-classify employees. (I’ve written about this aspect, before.) Too many companies try to save money by classifying employees as contractors. In so doing, the employer (the company) does not pay the employer match of the social security and Medicare taxes, convincing the employee s/he is making more money, since no taxes are withheld. Unless and until the employee is caught (as is the employer) and they find they owe significant bucks to the IRS.
The IRS uses three factors (behavioral, financial, and relationship) to determine whether one is an independent contractor or an employee. Some examples that would dictate someone is an employee and not a contractor are who provides the tools and supplies the person needs to do his/her job, how the worker is paid, what sort of controls are employed over the worker and his/her performance, whether there are written contracts, etc.
But, now another federal agency is getting into the act of defining employees. The NLRB (the National Labor Relations Board) has just made a decision that companies like McDonalds (the master franchisor) is a “joint” employer with its franchisees. This means that McDonalds is responsible for the labor actions of its franchisees. McDonalds had averred that the franchisees (that’s 90% of the 14,000 US establishments) are the ones setting wages and working conditions, and not the corporate officers. But, that opinion was offed by the NLRB decision.
This determination makes it easier for workers to associate into unions; it is much harder to enlist 19 employees (some of whom are part time) into a union effort for more wages- and much easier to enlist a bunch of folks for action against all restaurants in the franchise system. This will cover overtime issues, breaks, and the like.
McDonalds is not, of course, taking this decision lying down. They have begun action to overturn or change the legal opinion provided by the general counsel of the NLRB and its rule.
In the meantime, the NLRB is considering the same action against construction firms and similar entities that use subcontractors. The NLRB is also considering whether the rules governing temporary staffing entities should not be changed, as well.
That case in point is the Sanitary Truck Drivers and Helpers Local 350 (Teamsters Union) which wants Browning-Ferris Industries (BFI) and Leadpoint Business Services (temporary staffers) to be lumped together as a single employer. Right now, BFI dictates the hours and duties of all workers, but claims that Leadpoint is a separate company that sets its own (of course, IDENTICAL) policies.
While many say this a new concept, this policy was what obtained prior to 1984. Back then, any employer that maintained indirect control over various employment matters meant that joint-employer rules obtained. This was but one of the labor-protection laws that were changed when Ronald Reagan was president.
If these rules revert to the old definition, then the labor workplace will be entering a new phase. Watch this space for details…
The 3 criteria used by IRS are further broken down to 11 and then explained in a PDF. Even with more indepth explanations the relationship between two entities remains blurred. With the Labor board throwing its hat into the ring we can expect further confusion. Too many chefs…
I will be interested to see what this will do to a very small subcontractor and the ability to obtain work. My guess is that all the added government interference will spook contractors resulting in added hurdles subcontractors must jump in order to get a job.
Ann Mullen recently posted..How do you build a blog article? Part 1
Ann:
I think the IRS criteria are pretty specific- and, unless one is seeking to find a loophole (there are at least four of which I am aware) to try to exploit, the guidelines are clear. And, most employers know when they are playing fast and loose- they just hope they are not caught.
The NLRB rules are less clear, for now. But, that could be because they are new and need more fleshing out.
A subcontractor seeking work- one who truly is a subcontractor and works for multiple entities- will have no problems proving they are not employees.
Thanks for the comment.
Great informational article Roy. Lots to consider for employers. I especially appreciated the piece about employers trying to convince employees that contracting means they are making more money. In my last company, I worked with lots of contractors and vendors but the relationship was clear and the contractors were very part time. We also made sure they understood they would be responsible for their own taxes. My husband has often worked as a contractor in the computer software industry and we actually made less money since we also had to pay our own health insurance. Lots of considerations for employees when trying to decide what they want to do. Thanks for the information on changes that are coming.
Minette recently posted..Build a Better Business Card and Get More Clients
Minette:
Thanks so much for your comment- bringing the other perspective into play. I had forgotten to bring up the benefits issues- which includes vacation time. It’s tough to get that needed R&R, when there’s no pay coming in.