Contingent Workforce Compliance

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Contingent Workforce Compliance

• The ONLY legitimate purpose of businessis to
  promote the common goodthrough commerce JRZ
• Solo IC Compliance
• Protecting Organizations
• That Engage Contingent Workers
• James R. Ziegler, PhD
• President, Solo W-2, Inc.

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Who Are We?

• 1997 Incorporated as Jerzy, Inc.
• 1998 Processed first payroll as P.A.C.E.
  Professional Association for Contract Employment
• 2002 Named fourth fastest growing private
  business in SF Bay Area by SF Business Times.
• 2007 Re-incorporated as Solo W-2, Inc.
• Services Nationwide Currently processing
  payroll in about 25 states
• Headquartered in Concord, CA

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Solo W-2, Inc. Branded Services

• Proprietary Services for the Contingent
  Workforce
• Solo W-2Employer-of-record service for
  self-employed persons, small business owners,
  freelancers and consultants.
• Solo 1099Agent-of-record service for fully
  compliant independent contractors.
• Solo IC ComplianceCo-employment risk
  mitigation, employee training, contingent
  workforce compliance testing and contractor
  payment processing for organizations that engage
  consultants.
• Solo Back OfficeOutsourced back-office support
  and employee benefits for progressive staffing
  firms, small businesses and start-ups.

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What Do We Do?

• Solo IC Compliance
• Contingent workforce compliance
• Co-employment risk mitigation
• Contractor payment processing
• Education and consulting

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Contingent Workforce Management

• The Strategy and the Processes that manage the
• Acquisition
• Administration
• Control
• Of Contingent Workers

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Contingent Workers

• Temporary and Part-time Employees (HR)
• Your companys employeesNo Co-employment risk
• Tax Withholding, Benefits and Perks
• Usually Hourly Pay
• Staff Augmentation (HR or Procurement?)
• Gray AreaHigh Co-employment Risk
• Temps and Contract Professionals
• Typically Hourly Pay
• Outsourced Business Services (Procurement)
• Professional Services ProvidersLow Co-employment
  Risk
• Consultants, Vendors, Facilities Management, etc.
• Bid Process, Statement of Work, Bill by Project
  or TM, Paid by Deliverables and Milestones

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How Procured

• Contract with a Staffing Vendor
• Agency, Recruiting Firm, Supplier
• Employed by Employer of Record (W-2)
• Subcontract through Agent of Record (1099)
• Contract Directly with Individual
• Independent Contractor
• Sole Proprietor (1099) income and expenses on
  personal tax return
• Incorporated Business (Corp., LLC) income and
  expenses on business tax return

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Does It Look Like An Employee?

• Does the Worker Look Like an Employee
• who you are paying under the table?
• to avoid your obligations as an employer?
• To avoid paying for government entitlements?
• To avoid paying for employee benefits?
• Are You Creating a Condition of Co-employment?

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Co-Employment

• When someone who is
• Self-employed
• Employed by another employer
• Is found to be employed also by you
• To a greater or lesser extent
• With respect to one or more of the following
• Payroll and Income taxes
• Government mandated entitlements W/C, UI, etc.
• Employee protections EEOC, ADA, FLSA, Title VII,
  OSHA, etc.
• Employee benefits Retroactive compensation
• Retirement contributions Retroactive payments,
  ERISA
• Stock options
• Liability for negligence, criminal activity,
  etc., etc.,

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CWM Best Practices Costs

• Hard CostsEasy
• Negotiated Rates and Discounts
• HR and Procurement
• Soft CostsNot so Easy
• Process Controls, Efficiencies
• Finance and Operations
• Cost AvoidanceDifficult, Complex
• Contingent Workforce Compliance
• Legal and everybody else working together(!)

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Cost Avoidance

• Contingent Workforce Compliance
• Risk Management
• Risk is a part of every activity, process,
  document, instruction, communication
• Constantly evolving process
• Cannot know what you dont know
• Risk Mitigation
• Reduce exposure to avoidable risks
• Limit size of acceptable risks
• Transfer risk to someone else

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Contingent Workforce Risks

• Co-employment
• Compliance with applicable tax and labor laws
• Compliance with the common law
• Regulatory Issues
• Industry regulations, union contracts, licenses,
  certifications, service order agreements
• Intellectual Property
• Proprietary RD, processes, products, trade
  secrets, customer lists
• Security
• People, facilities, data, general and
  professional liability
• Sarbanes-Oxley
• Section 404, Internal Controls

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Co-employment Risks

• Governmental Audit
• IRS, EDD, DOL, EEOC, ERISA, FLSA, Wage Hour
• Reclassification under the Common Law
• Back taxes, penalties, interest
• Legal costs to defend yourself
• Lawsuits by Aggressive Law Firms
• Former current contingent workers
• Unions
• For
• Retroactive employee benefits
• Overtime pay
• Discrimination, harassment, workers comp, UI, etc.

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Why Does Co-employment Matter?

• Taxes
• IRS estimates self-employed underpay 350
  billion/year
• Employers withholds the taxes for employees, not
  for ICs
• Entitlements
• Social Security, Medicare, Workers Comp, UI
• Employers pay for employees, not for ICs
• Employee Protections
• Title VII, ADA, Family Leave, Discrimination
• Employees are protected, ICs are not

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Costs Can Be Staggering!

• Some Landmark Cases
• Microsoft, 97 million settlement. Class-action
  lawsuit. Eight years, five appeals, MS lost every
  one. Staggering legal costs.
• Metropolitan Water District of Southern
  California, 35 million for non-retirement
  benefits. Retirement judgment to follow.
• Time Warner, 5.5 million settlement. DOL action
  for wage and hour violations for temps.
• University of California, approx. 500 million.
• Allstate, 2 BILLION lawsuit
• Smith Kline Beecham, 5.2 Million settlement
• City of Seattle, 11.5 million settlement.

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Test Your Understanding

• Mitigate Risk
• Eliminate
• Reduce
• Transfer
• Or
• Exacerbate Risk
• Increase
• Create

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Mitigate Co-employment Risk?

• Yes or No?
• Tenure
• Your company places an upper limit on how long a
  contingent worker can work at your company (e.g.,
  12 months on and at least 3 months off).

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Mitigate Co-employment Risk?

• Yes or No?
• Mark-ups on Wage
• To ensure that all agency-supplied contingent
  workers are paid fairly, your company negotiates
  a fixed mark-up on the gross wage that agencies
  pay their temps.

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Mitigate Co-employment Risk?

• Yes or No?
• Background Checks
• When the nature of the business requires enhanced
  security, your company performs background checks
  on your contingent workers and keeps a copy of
  the result in each workers personnel file.

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Mitigate Co-employment Risk?

• Yes or No?
• Work Visas
• When engaging a foreign citizen as an independent
  contractor, your company has the foreign citizen
  pay the visa application fees.

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Mitigate Co-employment Risk?

• Yes or No?
• Employment Eligibility Verification
• To avoid problems with the Department of Homeland
  Security, your company obtains a completed I-9
  form from every independent contractor and
  staffing vendor employee.

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Mitigate Risk?

• Yes or No?
• IRS Form W-9 Request for Taxpayer Identification
  Number
• To avoid problems with the IRS, your company
  obtains a valid Social Security Number from every
  independent contractor and staffing vendor
  employee.

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Mitigate Risk?

• Yes or No?
• Contract to Hire (Temp to Perm)
• Your company adopts a policy to eliminate
  contract to hire.

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The Two Pieces of CWC

• Is the Contract with a Legitimate Business?
• Staffing Vendor
• Consulting Firm
• Fully Compliant Independent Contractor
• Is the Relationship that of a Client and Vendor?
• Treat worker as an owner-only business
• Or as the employee of an outside business

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A Legitimate Business Has

• Unique Business Name
• Registered DBA Fictitious Name Statement
• Business Bank Account
• Is business and personal money co-mingled?
• Separate FEIN
• Not SS
• Separate Tax Return for Business
• Business income and expenses NOT on personal
  return
• Business Registered with State
• Corp or LLC. Not sole proprietorship

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A Legitimate Business Has

• Adequate Commercial Insurance
• At least 1,000,000 GL
• Business License
• Registered locally
• Certifications common to their profession
• High professional standards
• Business Letterhead
• (e.g., business stationery, blank contract,
  purchase order, work order, change order, etc.)

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A Legitimate Business Has

• Printed Marketing Collateral
• (e.g., business listings, business cards,
  brochures, unique business logo, logo items,
  professional skills profile (NOT a resume!),
  samples of work, testimonials, and other sales
  oriented content
• Significant Investment in Business
• (e.g., incorporation fees, business operating
  expenses, commercial insurance premiums,
  specialized tools of the trade, professional
  software applications, etc.)
• Paid Assistants
• Subcontractors or employees

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A Legitimate Business Has

• Multiple Clients
• Services available to the general public. Not
  captive.
• Professional Web Presence
• Web site for business, service-oriented blog.
• Dedicated Office Space
• Separate phone for business
• Tools of the Trade
• Own computer, own test equipment, etc.

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Arent Payrolling Firms Enough?

• Third-party Employment Helps
• But does not eliminate risk
• Because Government Agencies and Courts also look
  to
• Relationship between the worker and the company
  where they work.
• Common Law the IRS Control Standard and tests
  by other government agencies.
• NOTE Microsoft and MWD lawsuits involved agency
  employees!

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Common Law Standards

• Common Law
• Non-statutory law reflecting a consensus of
  centuries of judgments by working jurists.
• Accumulated Case law.
• Worker Status Tests are NOT THE SAME
• US Courts Recognize over 50 Common Law Factors
  affecting Worker Status.
• Each Government Agency follows a different list
  of Common Laws.

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Many Common Law Standards

• Employee Benefits
• ERISA uses a twelve-factor list.
• Immigration
• Immigration Reform and Control Act (IRCA) applies
  a seven-factor test.
• Employment Discrimination
• Equal Employment Opportunity Commission (EEOC)
  applies a test based on the "right to control the
  means and manner of a worker's performance".
• Wage and Hour Laws
• Fair Labor Standards Act (FLSA) applies an
  economic realities test.
• Extent that worker is economically dependent on
  business.
• Employment Taxes
• IRS applies eleven-factor test in three areas of
  Control.
• The Control Standard.

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The IRS Control Standard

• Employer-Employee Relationship
• The right to direct and control the worker
• Not Only the Result to be Accomplished by the
  Work
• but also the means and details by which that
  result is accomplished.
• not only as to what but also how

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Somebodys Employee

• Every Contingent Worker is Somebodys Employee
• Employed by self (sole proprietor is default
  status of every citizen and permanent resident)
• Employed by an incorporated business the worker
  owns (corporation, LLC)
• Employed by a business somebody else owns
  (staffing vendor, consulting firm, etc.)
• Employed by your business (gulp!)

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Reclassification

• Change of Worker Status
• From somebody elses employee to your employee
• In government audit
• In class-action lawsuit

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Whose Employee?

• The Issues are
• Whose employee is the worker?
• In this particular context?
• And how can you prevent a government agency or
  the courts from reclassifying the worker as an
  employee of your business?

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Three Areas of Control

• Behavioral Control
• The right to direct or control how the worker
  performs specific tasks
• Financial Control
• The right to direct or control the business
  aspects of the workers activities
• Relationship of the Parties
• How you and the worker perceive your relationship

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Behavioral Control

• The right to direct or control how the worker
  performs specific tasks
• Instructions An employee is usually told
• when, where, and how to work
• what tools or equipment to use
• what workers to hire or to assist with the work
• where to purchase supplies and services
• what work must be performed by a specified
  individual
• what order or sequence to follow
• Training An employee may be trained to perform
  services in a particular manner.

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Financial Control

• The right to direct or control the business
  aspects of the workers activities
• The extent to which the worker has unreimbursed
  expenses
• The extent of the workers investment
• The extent to which the worker makes services
  available to the relevant market
• How the business pays the worker
• The extent to which the worker can realize a
  profit or loss

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Relationship of the Parties

• How you and the worker perceive your
  relationship
• Written contracts describing the relationship the
  parties intended to create
• Whether the worker is provided with employee-type
  benefits
• The permanency of the relationship
• How integral the services are to the principal
  activity

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Rule of Thumb

• Contingent Worker is a Vendor
• Treat any contingent worker the same as
• Carpenter
• Painter
• Auto Mechanic
• Plumber
• Would you ask any of these workers
• For their resume?
• To justify their wage?
• For their Social Security Number?

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Corporate Culture

• Begins with Terminology
• Vocabulary affects our thoughts and attitudes
• Our thoughts and attitudes affect how we act
• Our actions affect the nature of the working
  relationship

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Workforce Vocabulary

• Employment
• Candidate, applicant
• Employee, new hire
• Recruit, hire
• Fire employee
• Human resources, HR department

Contract, work for hire Bidder, vendor,
seller Independent contractor, vendor, provider,
temp, contractor, contract professional,
consultant, free agent, freelancer,
etc. Procure, purchase, buy, engage the services
of, contract with Terminate contract Purchasing,
procurement department
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Workforce Vocabulary

• HR manager
• 90-day evaluation period
• Job, position
• Job description
• Advertise a position
• Apply for a position

Procurement manager Contract-to-hire Project,
contract assignment Project specifications,
specs, statement of work, requirements, scope,
work order Request proposals, bids, quotes or
information Bid on a contract, submit a
proposal, submit an estimate
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Workforce Vocabulary

• Resume
• Hiring authority, hiring manager
• Wage, salary, pay rate
• Open-ended, indefinite
• Employment agreement
• Control details of how work is to be done

Marketing collateral, skills profile, brochure,
proposal, bid, price list Procurement authority,
buyer Service fee, fixed fee, billing
rate Fixed duration, contract extension Independ
ent contractor agreement, contract for services,
addendum, purchase order Specify end result,
service levelagreement, milestones, deliverables
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Workforce Vocabulary

• Supervise
• Ad hoc request
• Employer-paid or mandatory skill-set training
• Time sheet, signed approval

Manage, oversee, terms that do not imply close
supervision Work order, addendum to contract,
purchase order Uncompensated or voluntary skill
set training Preliminary invoice, statement of
work, acceptance form, signoff form, final
invoice, bill
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Compliance as Easy as 1 2 3

• Step 1 Direct Source the Contract
  Professional
• Step 2 Negotiate a Fair Billing Rate for the
  Contract Professional
• Step 3 Refer to Solo W-2, Inc. for Independent
  Contractor Compliance Testing

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If Not IC Compliant

• Solo W-2
• Converts Contract Professional to Warranted W-2
  Employment Status
• Solo W-2
• Employs Contractor
• Processes Payroll with Solo W-2, Inc.s Tax ID
  Number
• Issues IRS Form W-2

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If IC Compliant

• Solo 1099
• Classifies Contract Professional as Certified IC
  independent contractor
• Solo 1099
• Subcontracts Independent Contractor
• Processes Pass-through Payment to ICs Tax ID
  Number
• Issues IRS Form 1099
• Dynamic Compliance File

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Strong Affirmative Defense

• Third-party Assessment of Compliance
• Creates a strong affirmative defense against
  claims of employee misclassification
• Dynamic Compliance File with Automatic Alerts
• Ensure that Certified IC Independent Contractors
  stay in compliance

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For Client Company

• Advantage to Companies that Engage Solo W-2
  Employees
• Strong mitigation of co-employment risks
• IRS reclassification.
• UI and Workers Comp claims.
• Liability claims.
• Class-action lawsuits.
• Simplified contractor billing
• Consolidated invoicing.
• Online time and expense reporting.

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For Small Business Owner

• Advantage of Solo Back Office to Small Business
  Owners and Start-ups
• Give yourself and your key team members
  executive-level employee benefits.
• Compete more effectively to attract, recruit,
  reward and retain exceptional talent.
• Manage rapid growth and irregular demand.
• Easily deploy and reassign a flexible workforce.
• Process payroll and benefits as easily as making
  an ATM deposit.

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For Solo W-2 Employee

• Advantage to Solo W-2 Employee
• Easily convert your Solo gross revenues to
  W-2 net wage.
• Obtain guarantee issue, true group insurance.
• Contribute to an incredibly generous 401(k) plan.
• Experience a lower IRS audit profile.
• Enjoy a stronger credit rating as a Solo W-2
  employee.
• Solo W-2 employees are more attractive to larger
  clients.
• Optional contracts administration, timely
  invoicing and assertive collections.
• Continuity of employment and benefits.
• Simplified tax reporting, and
• IRS Form W-2 at the end of the year.

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Your Best Solution

• For the greatest mitigation of co-employment
  risk
• For the strongest affirmative defense against
  reclassification
• Solo IC Compliance is your best solution.

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All You Need to Know

• www.SoloW2.com