The world of work is changing rapidly, creating new ways of working, new ways for employers to get work done.   

For both companies and employees, the need to have quick and easy access to talent and work, has created a new way of working outside the traditional employee-to-employer relationship.  Independent contractors, often called 1099’s, are people who work assignment to assignment, project to project.  Currently, this workforce is estimated to be 16 million folks, and by 2015 is targeted to be 21 million.     

Unfortunately, the legal and financial ramifications of this growing new workforce have not escaped the attention of taxing agencies who want to protect the revenues generated from a W2 employee base.  W2 employees have their taxes withheld at each paycheck and their employer pays most, if not all, payroll taxes on their behalf.  The IRS and multiple state taxing agencies are now challenging the validity of the “independent contractor” status, ensuring that employers are not using a worker’s preference to work independently as a way to avoid otherwise mandated tax calculations, payments, and reports.  When employers organize work in ways that blur the distinctions between their W2 and 1099 workers, they are often doing so without being fully aware of the risks of creating a basis for a misclassification audit, which can be costly for both employers and 1099s.     

We have prepared the following Q and A to outline the issues employers are likely to face when defending the classification status of their 1099 workers.  Make no mistake, if you are a large or significant user of the 1099 worker model, there is likely a state or federal taxing agency who either has you and/or one of your 1099 workers on their radar as we speak.    

Why independent/1099 workers?

The independent/1099 worker provides employers with all the traditional benefits of flexibility.  They are paid only for hours actually worked or in some cases results produced.  Savvy independent contractors price their services at a level to appropriately cover the costs of taxes and benefits, so the per-hour rate is often considerably higher than applied to their W2 employee counterparts.  Employers are willing to pay the higher rates preferring a process where there is little to no paperwork for them, no hidden costs, and no complicated benefit packages to administrate.    

Convenience aside, the most frequently stated reason why companies hire independent contractors is that it has become a workforce made up of highly talented and sought after technical and managerial professionals—many calling themselves consultants.  Most 1099 workers have not only fully mastered their craft, but because of their exposure to a wide range of project and organizational challenges, have created profiles with the skills, expertise, and talents that are highly valuable to most employers.       

Why do workers choose to work as “independent contractors”?  

The popularity of independent contractor status within the employee community is also growing exponentially.  At some points in their career, workers like the exposure they get to a wide range of technical or professional challenges, plus the flexibility that comes from being able to work when they want to. 

For many professionals, the higher per-hour pay they can earn as a “consultant,” in addition to the deductions they can take on their individual tax return for certain business expenses not normally deductible to a W2 employee, creates a level of financial security they would not be able to obtain working as a W2 employee.    

What is the difference between an independent contractor and a regular W2 employee?   

Theoretically, the two types of workers should be noticeably different in terms of when and how work is performed, how it is financially transacted (by invoice or paycheck), and the length and scope of the working relationship between worker and employer/client.  In the real world, however, the differences between the two types of workers are not always that easy to discern and often comes down to a determination of whether or not the independent worker has legally created their independent contractor status (business license, tax id numbers, professional liability insurances, etc.).  Given this breakdown between theoretical intent and pragmatic execution, the intended distinction between the truly independent and the truly W2 worker populations has been blurred, creating real consequences for worker misclassifications at an alarming rate.     

If I classify a worker as an “independent contractor” do I avoid having to pay all payroll taxes?

Not really.  A nuance and little known aspect of Washington State law is that employers who use Independent Contractors to perform personal work are required to pay the Workers Compensation insurance and the state’s SUTA tax on hours and dollars paid to these 1099 workers.  Only if a 1099 contractor is a fully licensed and incorporated business entity (an LLC for example), paying the required business revenue taxes, can these costs be avoided.    

Bottom line, classifying an individual worker as a 1099 in the State of Washington does not automatically bypass the employer’s responsibility to report hours of work for workers compensation insurance or earnings that are used to calculate and pay Washington State’s SUTA tax.  There is more involved before those taxes can be fully avoided.

Why do we need to classify workers correctly?     

The issue at stake revolves around an employer’s obligation to calculate and pay taxes for W2 employees that they do not have for independent contractors.  For their 1099 workforce, employers pay an invoice and there is no withholding for federal or state income taxes, calculation and payment of social security, Medicare or unemployment taxes.  If a worker is originally classified as a 1099, but under audit turns out to be an employee, the employer is often subject to back taxes, fines, and penalties. 

The liabilities associated with a misclassification audit are both unforeseen and expensive.  Since September 2011, the IRS has collected 9.5 million dollars in back taxes, penalties, and fines from employers who have misclassified more than 11,400 workers.     

How do you “test” if a worker is a W2 or an independent contractor?     

One of the common misperceptions with 1099 workers comes from employers who believe that if their “contractor” is legal, (i.e. they have the proper business licenses, UBI (tax ID) numbers, insurances, etc.) and a contract between themselves and their contractor that labels them “independent”, they  meet all aspects of the 1099 test.  Most taxing agencies, on the other hand, operate from the belief that the “legality” of the claim of independent contractor status lies with the nature of the work to be performed and the degree of control the employer has over how and when it is performed—not the legitimacy of the contractor’s right to work as an independent contractor.   

There are a number of tests that are administered by different state and federal taxing agencies to determine if a worker is really an independent contractor or a W2 employee.  Unfortunately, not all of these tests are fully compatible, nor is case law clear on how any test can be applied, making the whole landscape of proper classification a slippery slope.  

In the end, most of the classification tests come down to:

• The degree of control the company has over the worker’s behavior.  The more control an employer has over where, when, and how work is performed, the less likely the worker can be considered “independent.”  Employers who place their independent contractors on work teams with required hours of work, mandatory attendance at meetings, and required collaborations around work products, often do so at the risk of having that independent contractor be re- classified as a W2 employee.   
• The degree of control over a worker’s financial opportunity.  The more control an employer has over a worker’s source of income, the less likely that worker will be found to be “independent.”  An agreement to pay a fixed cost per week, for example, can be just as suspect as an agreement to pay an hourly rate if the agreement includes a provision to work 40 hours/week—both tie a worker to a single source of income for extended periods.  Other considerations related to “financial control” include payments or reimbursements for business expenses, equipment or tools.  The more these sources of income are directed and controlled by the company/client, the less independent a worker will appear.
• The type of relationship (exclusivity or duration) that is formed between worker and company.  Case law around the permanency of a relationship suggests that work assignments intended to last six months or longer make the independent status more suspect than shorter term work arrangements.  A related factor is whether or not the worker is free to pursue other business opportunities during the term of their agreement.  Companies who regularly entertain independent contractors who work a regular 40 hour work week, and for years at a time, are clearly stretching the definitions of “independent.”   

What if I misclassify?      

The first thing for you to know is that you’re not alone.  The IRS estimates that businesses misclassify workers as 1099’s anywhere from 10-60% of the time.  The bad news is that if a misclassification is uncovered under audit, the outcome can be serious—back taxes, fines, and penalties in addition to costly law suits stemming from unprotected workplace accidents or injuries. 

Why is the misclassification issue such a hot topic right now?     

With state and federal government budgets fighting the pinch of reduced revenues, they have become increasingly aggressive about collecting monies they believe are owed to their agencies.  When we first started writing about the misclassification issue two years ago, we were only concerned about federal agency (D of L, or IRS) audits.  Today multiple state agencies have gotten involved because depending on how a worker is classified, this could impact who pays the workers compensation insurance, state unemployment and revenue taxes in the city of Seattle.  For example, access to mandated Seattle Sick and Safe benefits is targeted to put increasing pressure on employers to clarify who is entitled to this benefit and who is not, and to defend that claim in a lower court test.   

The federal government has set goals for the number of employers they will audit, and have set aside significant budget dollars to resource these audits.  Most alarming is that federal, state, and local governments have formal agreements to work together when cases of misclassification are uncovered—multiplying the financial ramifications that employers are likely to face under audit.    

What are some “red flags” that might trigger a misclassification audit—what should we avoid?  

Here are some simple rules of thumb:

• Overlapping a W2 and 1099 status for the same employee in the same report year can be an audit trigger.  Avoid firing a W2 worker and bringing them back a week later as a 1099.
• There is a form, IRS SS-8’s, which can be used to request government determination of a classification status.  Keep the number of these forms you file or your 1099’s file on your behalf to a minimum.
• 70% of misclassification audits get triggered by independent contractors filing for benefits routinely available to W2 workers, (i.e. workplace injury claims, unemployment claims).  Make sure your workplace policies and practices avoid references to these benefits.    

What happens if an independent contractor files for unemployment or is involved in a workplace accident?

One of the most common ways regulatory agencies become aware of misclassifications has come out of the increased number of unemployment and worker’s compensation claims that are being filed by workers formerly considered independent.  Unemployment officials have not only been granting 1099 workers benefits—implying they’re an  employee, not independent status—but have alerted other agencies as to the possible misclassification of other “similarly situated” workers, turning a claim for unemployment into a much larger misclassification audit.   

Another serious source of liability can occur if a workplace accident occurs involving a 1099 worker who is not covered under the employer’s Workers Compensation policies.  Lacking coverage, the employer is not protected from the limited liability provisions of workers compensation laws, and can find themselves sued for double, if not triple personal injury damages.

What can companies do to protect themselves from misclassification issues?

The best answer is the simplest—make sure your independent contractors are really independent contractors, working in ways that would normally apply to someone or a company who works independently—free of your control. 

If that level of independence isn’t possible, as it often isn’t, your choices are 1) to end your relationship with the 1099, or 2) convert the 1099 to your W2 workforce.  A third option, new to the misclassification issue, is to insert an Employer of Record Service provider who can turn your 1099 workforce into a low cost W2 workforce.  This option is discussed below.   

If your analysis reveals that there is room for a genuine independent contractor to work in your organization, you need to:

1. Develop and execute an independent contractor agreement that, among other things, acknowledges the intent of the relationship and waives any rights to company sponsored health or retirement benefits.  We recommend including in your agreement a provision that the independent contractor recognizes you as their common law employer with respect to protections under workers compensation laws in the event of workplace accidents.  We also recommend you include an indemnification clause that excuses you from any liabilities associated with an independent contractor’s failure to pay their own mandated self employment or W2 taxes.
2. Create specific policies and procedures for working with true independent contractors.  Train your front line managers on the requirements for “independence” to ensure the lines of differentiation stay clean. 
3. Review benefit plans to ensure a clear definition of plan participants, specifically excluding the employees of third party employers and independent contractors.
4. Conduct internal audits of your current 1099 workforce, ensuring all contracts are up to date, and that your company is paying the required taxes on those who are providing personal services.

What is an Employer of Record Service?  How can it help with misclassification issues? 

Because the issues surrounding employee classifications are not white/black and courts are inconsistent in their rulings on the cases they have heard, one of the ways to avoid any risk of a misclassification audit is to create policies that prohibit the use of personal service 1099’s in your organization, while offering an alternative method for providing quick and easy access to high impact talent.   

Employer of Record Services do that by converting a 1099 workforce into a W2 workforce at a fraction of the costs associated with most employers W2’s.  The Employer of Record Service provider simply handles paperwork, ensures worker compliance, arranges for weekly pay, and oversees the filing of all government required paperwork. 

As a benefit for the former 1099 worker, the Employer of Record Service provides full administrative and HR support, including a facilitation of their access to the benefit entitlements of W2 workers.  The bill rate or “take home pay” either goes up or remains the same, but their financial benefits are substantially increased.

Employer of Record Service providers typically will supply electronic paperwork to onboard or off-board workers quickly, preserving the benefits of immediacy and flexibility, while eliminating the risks of liabilities down the road.  The IRS is happy with this solution as are all local taxing agencies.  Your company is no longer on the target list for misclassification audits.    

The PACE Staffing Network now offers a full range of menu driven Employer of Record Services that can be used to turn a potentially dangerous 1099 workforce into a “legally compliant”  W2 workforce.  We handle all aspects of the “change process” by working closely with your team to explain the financial benefits to your 1099s for becoming W2s, oftentimes facilitating their own ability to move between assignments with different companies.     

For a discussion about how your company currently uses 1099 contractors and the options you have to mitigate the risk of misclassification, contact our Employer of Record Specialist, Kyle Fitzgerald at kylef@pacestaffing.com

While we have always known that the Patient Protection and Affordable Care Act (aka – PPACA, ACA, AHA, Obamacare) would impact the temporary staffing industry and its customers, the regulatory information that has been surfacing over the last several months is starting to reveal the impact of some of the details embedded in the law.

We are finding both good and bad news in the newly published  regulations….new requirements that will increase the costs of temporary and contract workers;  nuances in those requirements that will make flexible workforce strategies an even more attractive model for driving down operating costs.   While the law is still very confusing, the reality is that most of the regulations that will be written, have been written to the point where more and more cost conscious employers are starting to re-think how they get work done – what types of employees to put to work when, where,  and how.

The following information is being provided to PACE customers as a way to lay out the facts of the ACA and its regs, prepare you for what lies ahead, and offer some ideas for not only staying compliant, but mitigating some of the cost increases we are all anticipating.  Our comments  will focus primarily on the impact of the ACA on our client’s non-W2 workforce, which includes not only your temporary and contract workers but any workers performing work on your behalf through the services of a third party employer.

ACA Overview

Under the ACA, all “large” employers are required to do three things to stay in compliance with the law as of January 1^st, 2014.

1. Offer “minimum acceptable” healthcare insurance to 95% of their eligible fulltime employees (leaving a 5% margin of error).
2. Ensure that the cost of the plan they offer is “affordable” –i.e. will not require any employee to pay more than 9.5% of their annual pay towards the costs of an individual plan, and
3. Ensure that the plans(s) offered and the employer’s contribution to these plans is not set up to favorably treat highly compensated employees.

Large employers will be required to pay the costs for meeting these three requirements (what is often called the “play” option) or face substantial penalties for non-compliance (what is often called the “pay” option).

The definition of a “large” employer applies to any employer with fifty or more fulltime employees.  A fulltime employee is someone working 30 hours a week or 1560 hours per year.

The Bad News for Staffing Companies and Their Customers

Some clients have asked “does PACE have to be compliant with the law?” The answer is a resounding yes.  And for PACE, like most staffing providers, our bad news is that the types of healthcare benefit packages typically available to the staffing industry will no longer meet the new federal standards for “minimum essential coverage.”  Most staffing companies are making decisions now to either “play” (pay the additional costs associated with compliant coverage), or “pay” (pay the penalties for non-compliance, i.e. $2000/year per uncovered employee).

Both options mean that as of January 1^st, 2014, the direct costs associated with using third party staffing services will increase.  We are anticipating that the costs to become fully compliant with the law will require most staffing companies to ask for a 2-4% increase in client bill rates, just to break even;  anywhere from $.16 to $.35 cents per hour.

Cost increases for all types of staffing – core and non core - represent the bad news that is part of the ACA and will impact  all “large” employers on or about January 1, 2014.

Some Good News for Users of Staffing Services—the Variable Worker and Look Backs!

All of the news embedded in the ACA is not bad!  While an employer’s requirement to provide coverage applies to all full-time employees (individuals who work 30 hours a week, 1560 hours a year), there are special rules that apply specifically to the types of “variable” workers who work for temporary and contract staffing companies.  We believe these rules will create new opportunities for cost savings for PACE customers.

As the ACA regulations have rolled out, we now know an employer can stay in compliance with the law and still delay offering the mandated benefit packages to some employees who can be legitimately classified as a “variable” worker.  A variable worker is someone working in a job that is subject to change, or with an uncertain duration or end date – a condition that is pretty much a given in most temporary or contract staffing environments.  The period of time between when the variable worker starts work and the date when they are evaluated for benefit eligibility is called the “look back period” , and can be 3, 6, or 12 months—each employer gets to decide.

Staffing companies who go through the administrative process to confirm their workers are  “variable”  and therefore subject to the “look back” provisions in the law, will be able to generate significant cost savings for their customers.  While most of our client’s W2 employees will not qualify for variable worker status, and must, therefore, be offered the mandated benefits within an administrative period that cannot exceed three months,  most temporary or contract workers will be considered  ”variable” and  not eligible for insurance coverage until they have reached the required 1560 hours (9 months or more).

This variable worker “look back” provision in the ACA creates considerable opportunity for companies like PACE to offer our clients “variable” workers at significantly less cost than would be required for the client to hire an employee directly.  The differentials in the direct costs of these two types of employees will be dramatic—creating compelling reasons to rethink their use of third party employers in the early stages of a new hire.

The Impact of New Anti-Discriminatory Regulations on Our Clients Benefit Costs

One of the more significant impacts of the ACA, not often discussed, are provisions in the law that tighten up opportunities to treat different types of employees differently.  Consultants to our industry are advising us that the anti-discrimination components of the ACA will obsolete any plan that differentiates coverage or costs in favor of highly compensated employees.

For the staffing industry, this means that whatever benefit programs offered to our temporary employees needs to be offered to our regular employees.  For our customers this means that whatever healthcare benefit package offered to their highest paid employees must be offered to their lowest paid employees.

To be compliant with the “affordability provision” of the ACA, no benefit eligible employee in your workforce can be asked to pay more than 9.5% of their gross pay for the cost of your plan’s individual coverage.  For a worker earning 20K in a year, this means they cannot contribute more than $1900 a year or $158.33/ month  in order for the plan offered by their employer to be compliant.  How this compliance benchmark is achieved is what will get tricky for many employers.

When the compliance calculations are based on what the employer can legally pay for the lowest paid employees, it limits the amount of employer contribution that can be applied to the highest paid employees.  If the amount contributed to all employees is based on the amounts of the employer contribution made available to higher paid employees, overall costs of benefit coverage will skyrocket.

This is the dilemma the law intends.  Employers will be challenged to create benefit programs that will be equally appealing and affordable for all employees.  We are already talking to some employers who will elect to outsource their W2 relationships simply to avoid the risks of discrimination.

Employer of Record Services—Minimizing the Impact of the ACA!

The following are some ideas for PACE customers who are open to looking at new staffing strategies built around the special provisions in the law designed specifically for staffing providers.  You will notice that we have laid out these ideas from the perspective of a third party employer service provider, not just a temporary or contract labor provider.

The PACE Staffing Network has recently added a new “employer only” service, what we call an Employer of Record Service, partly in anticipation of the service needs of our clients following the implementation of the ACA in January.  Employer of Record Services are particularly attractive to employers with strong internal recruiting capabilities because they offer highly discounted bill rates that carve out all extra costs (for recruiting, screening, etc.) to include only those costs associated with providing W2 employer services.

Employer of Record Service packages are customized to the unique needs of each client, but the following represents a few ideas of how these services might be applied to your workplace as a way to shave workforce costs.

1. Employers can use a third party employer solution to avoid compliance requirements.  For employers who need to add staff, but also want to remain below the 50 FTE (fulltime equivalent) threshold that exempts them from the ACA regulations, using a third party employer solution to channel employees to another employer can delay the point when they must become compliant with the law.

The Employer of Record Service option is ideal for employers who have located an employee they want to hire, but don’t want to absorb the costs or administrative hassles of employing that worker directly.  Employer of Record Services is especially ideal for companies who want to either avoid or delay the compliance requirements of the ACA.

We are encouraging our smaller clients to plan now for what lies ahead.  We’ve heard stories of regulatory agencies getting ready to target companies who have been sending large numbers of already existing employees to a third party employer as a way to avoid ACA regulation.  We do not recommend this strategy. 

But for employers who haven’t yet reached that 50 FTE benchmark, a third party employer solution applied to your near term hires can successfully delay when your company falls under the ACA.

Word of caution: using a third party employer solution is considered a short term (one-two year) solution.  The administrative rules of the ACA dictate that after one year, all workers in your facility, regardless of who employs them, will be counted as part of your FTE.

2. Employers Can Use a Third Party Employer Solution to Mitigate the Costs of Adding Staff.  If you’re an employer who needs to hire but is reeling from the high costs currently associated with each new hire (and targeted to increase after January 2014),  it may be time to seriously consider using a third party employer solution as an extended (6-12 month) onboarding strategy.

While you may have already reviewed and walked away from the more traditional temp-to-hire staffing models, the lower cost, Employer of Record Service model offers all the cost savings advantages of categorizing employees as variable, while providing a very behind-the-scenes model of W2 employment.

Whether you use the full service temp-to-hire service model, or the considerably streamlined Employer of Record Service model, the opportunity to onboard a large number of workers at substantially lowered worker costs compared to the costs of hiring directly is the outcome of either choice.

3. Employers Can Use a Third Party Employer Solution to Avoid Administrative Hassles.  The ACA is not just a regulation that adds additional direct costs, but is a regulation rich in administrative detail and reporting requirements.  Administering healthcare benefits where you have to apply definitions of variable workers, calculate look back, measurement and stability periods, and do e “affordability” testing, is going to be a daunting task for whoever takes it on.

And the penalties for not doing the right administration correctly will be significant.

As a staffing company with a large “third party employer” workforce, one of our core competencies is our ability to manage all federal and state staffing regulations, including the ACA.  We are getting ready now to be fully compliant with all regulations by January 1^st, 2014 and will be ready to help our customers manage through the transition.

For a better understanding of how the ACA will impact your company and what you need to know about the options available for you to mitigate the costs associated with the new mandates, contact infodesk@pacestaffing.com to arrange for a personal consultation.  Our approach to the ACA is not only to be fully compliant by January 1^st, 2014, but to help our customers take full advantage of all aspects of ACA provisions that can drive down staffing costs.

This article was prepared by Jeanne Knutzen, Founder and CEO of the PACE Staffing Network using information from a variety of legal, staffing, and other professional sources.

While companies who have effectively used independent contractors to provide quick and easy access to specialized talent or consulting expertise are often considered amongst our most nimble, some of these same companies have recently found themselves facing hefty bills for back taxes, or complicated law suits stemming from workplace accidents or injuries involving a member of their 1099 workforce. 

Here’s the deal, if the IRS determines that a worker originally considered “independent” was actually an employee, companies can find themselves liable for unpaid Social Security, Medicare, and Unemployment taxes.  The IRS couldn’t be clearer, they see “employee misclassification” as a source of hidden revenue, and has budgeted several billion dollars to “identify and prosecute” employee misclassification issues.  

But unpaid taxes aren’t the only risk associated with the 1099 workforce.  Additional issues have developed around workplace accidents where, because a worker was classified as an independent contractor and not covered under the employer’s Workers Compensation policies, the employer was not protected from the limited liability provisions of Workers Compensation and found themselves sued for double and triple damages.  A nuance in Washington State law is that employers who use Independent Contractors are required to pay the Workers Compensation insurance and the state’s SUTA tax on hours and dollars paid to their 1099 workers.  Not all states have this provision, nor do all employers in the State of Washington abide by this little known component of our state law.  Bottom line, employers are at risk of incurring serious damage costs from a workplace injury by an “independent contractor.” 

One of the confusions we have seen employers make regarding their use of “independent contractors” stems from the mistaken notion that if the “contractor” is legal, meaning they have a business license or legitimate UBI (tax ID)  number, then they automatically pass the “test”, and can be considered “independent”.  The IRS, on the other hand, makes it clear that the “legality” of the claim of independent contractor status lies with the nature of the work to be performed and the degree of control the employer has over how and when it is performed.  

The IRS offers several tests an employer can use to determine a worker’s status:

• The degree of control over the worker’s behavior, which addresses the extent to which an employer controls the work performed.  The more control an employer has over how a worker performs the work—specifying where, when, and how the work is done—the less likely the worker will be considered “independent.”  Employers who place their independent contractors on work teams with required hours of work, mandatory attendance at meetings, required collaborations around work products, etc., often put an independent contractor at risk of being re-classified as an employee, subject to all the provisions and benefits available to an employee.   
• The degree of control over a worker’s financial opportunity, which relates to how a worker gets paid for the work performed or reimbursed for the costs they incur in performing the work.  The more control an employer has over a workers total source of income, the less likely that worker will be considered “independent.”  An agreement to pay a regular wage/salary for example, can be just as suspect as is an agreement to pay a worker hourly, but with an estimated work schedule of 40 hours each week.  Work agreements that tie a worker to an employer who then becomes their sole source of income, suggests a less than “independent” relationship with that employer.  A related financial consideration is how much personal investment the worker has in the tools they use.  Are they using their own tools/equipment or the company’s tools/equipment?
• The type of relationship that is formed between worker and company, oftentimes construed as the exclusivity of the relationship, or the duration of the work commitment.   Case law around the permanency of a relationship suggests that work assignments intended to last six months or longer better support the notion that a worker is an employee, compared to shorter term work arrangements.  A related factor is whether or not the worker is free to pursue other business opportunities during the term of their agreement to provide their personal services to a company.  If an employer is asking or assuming someone will work 40 hours/week on their behalf, it is hard to make the argument that they are free to pursue business opportunities elsewhere.   

Unfortunately, case law on the use of these IRS tests to determine employee or independent status is riddled with inconsistent outcomes, making it hard for businesses to make quick, definitive classification decisions.  An employer who wants to fully protect themselves can file IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.  The downside, it often takes several months to get a response on a particular request.

In light of the growing number of state or federally generated tax audits, we are seeing more and more companies who have historically relied on independent contractors for specialized work in the IT, engineering, or other professional services areas now looking differently at that staffing solution.  Some companies have elected to hire these workers directly; others have elected to end long term relationships with 1099 contractors, sometimes leaving significant expertise holes in their organizations.

A third option involves a new category of staffing service that allows an employer to continue to utilize their highly valued but flexible 1099 workforce, while avoiding the legal or financial risks being created by the revitalized audit efforts of state and federal agencies.  The PACE Staffing Network now offers a full range of  Employer of Record services that can quickly and cost-effectively convert a client’s current 1099 workforce into a “legally compliant”  W2 workforce without adding the additional costs normally attributed to a core workforce.      

The PACE Staffing Network regularly provides Employer of Record services to customers who are looking to optimize workforce flexibility, while avoiding the risk of unforeseen liabilities.  For a complimentary discussion about how your company currently uses 1099 contractors and the options you have to mitigate the risk of misclassification, contact infodesk@pacestaffing.com.

As you factor in the state of the financial job market, the unique needs of your company, and your available position, what kinds of traits should you consider valuable in a potential candidate? Which qualities should you consider red flags? When you see signs that seem promising, should you act fast and make a decision? Or should you consider the depth of your candidate pool and hold out for more? Keep these considerations in mind as you move through the selection process.

1. First, review the hiring successes and failures of the past. Gather a few profiles for careful examination, including those of the best candidates hired in the past five years and the worst (those who stayed for only a month, were difficult to get along with, or were dismissed after expensive mistakes). What made the great ones stand out? Why did the weak ones fail? And were there any signs of either success or failure that were visible before the candidates were brought on board?

2. Second, separate cultural considerations from technical knowledge and skill. A great candidate means a great “fit”, and fit includes a combination of both attitude and aptitude. Technically skilled candidates won’t thrive if they resist the culture, and likeable candidates will only prosper if they can master the job without excessive stress.

3. Choose candidates who will stay. This may mean letting go of the highly qualified or overqualified superstars, and turning instead to slightly less trained or less experienced applicants. These applicants can be hired at a premium, trained while on the job, and end up just as skilled and a little more grateful and loyal than their superstar counterparts. No matter who you hire, superstar or not, be sure to implement retention strategies to keep your valuable employees.

4. Choose candidates that are flexible and ethical. New regulations affect the financial industry on a regular basis. Are your candidates ready to let go of old models and embrace new ones quickly and fluidly? Are they interested in doing what’s right and going the extra mile to stay aboveboard? Or are they entrenched, entitled, sullen about change, and reluctant to break old habits and patterns?

5. Choose candidates who show respect—Not just for the company, but also for its business model, its customers, its clients, its stakeholders, and the larger community. Look for candidates who consider the big picture and are interested in how the entire company works, including revenue generation.

Reach out the Seattle staffing experts at Pace for more information on screening, hiring and retaining only the most talented financial employees.

Recruiting is a tricky business with a definition of “success” that varies widely from one open position to the next. Sometimes a position needs to be filled fast, above all else, and candidate credentials are flexible. Sometimes only one credential matters, and the identification of a candidate with this unique skill set can be considered a home run, even if the process takes six months. Sometimes strong recruiting requires a sharp eye for red flags, sometimes it takes a wide network, and sometimes it takes the ability to pitch a company and position to a star candidate buried in competing options. And of course, sometimes excellent recruiting requires all of these things and more.

Here are a few recruiting tips that help you leverage your advantages and overcome the obstacles that stand between you and the candidates you need.

1. Set clear goals.

Before you set off on a sourcing mission, make sure the requirements of the position are crystal clear. Maintain open communication channels with the client if you’re an outside contractor, and if you’re recruiting in-house, stay in touch with HR, the position manager, the department head, and even the financial pros who set the budget for this specific salary. Know what you want—and what you can afford—before you start looking.

2. Lean hard on your network

Don’t leave any stone unturned, and don’t leave any option unexplored. You may start by running a keyword search through your current resume database, but don’t stop there. Attend networking and industry events, visit job fairs, and collect resumes from any likely candidate through any available source.

3. Don’t waste time.

If excellent, top tier candidates have special requirements (like salary adjustments, moving allowances, or the ability to work remotely) then go ahead and negotiate. Present them to the client anyway and be clear about the terms. But if a candidate is a marginal match and comes with a list of deal breakers, just move on.  The right match is out there, and the longer you wait to find her, the more likely she is to land another position first.

4. Most important, when you find your star, move fast.

Don’t lose your top choice to a competing offer after you’ve made up your mind. Put the HR wheels in motion, cut through the red tape, and get the offer in to her hands before she’s lured away.  During the entire process, treat the candidate with respect and keep her updated whenever your timeline changes.

For more information on competitive recruiting strategies, or for a consultation on how to turn your contingent staffing strategies into a competitive advantage, contact infodesk@pacestaffing.com.

Under the Federal Fair Labor Standards Act (FLSA), all non-exempt employees must be paid the minimum wage for all hours worked in a work week and must be paid overtime at the rate of 1.5 times the employee’s regular rate of pay for all hours worked in excess of 40 hours in a work week.

What isn’t often discussed is what hours of work or work related activity must be included in the count of hours of work paid at either regular or overtime rate.  

We run into these issues periodically when working with our hourly paid flexible workforces.  Whether these workers are categorized as exempt or non-exempt, they must be paid for all hours of work. 

The following is a list of situations where we frequently field questions from our clients:

• Pre and Post-Job Activities.  All job-related activities required as a part of an employee’s work must be calculated as hours of work.  This includes work performed either before or after the employee’s  actual work schedule and includes pre-start orientations, required after hours meetings, or any hours spent by workers for their employer’s (or our client’s) benefit.  Examples of time to be paid would be the time it takes to complete a time card, to change in or out of required work clothes or equipment, to assemble materials needed to perform the work, or to receive instructions about the work—all are considered hours worked and the employee must be paid.    
• Waiting Time.  Employees who arrive at a work site early—earlier  than the required start time—are not automatically entitled to be paid for any time they spend waiting to begin work.  However, if an employee reports at the required time and then waits because there is no work to start on, the waiting time is compensable.
• Stand-By Time.  Workers who are required to stand-by at a worksite “ready” to work, must be paid for this waiting time.  Stand-by time typically refers to short-term time periods where a worker is not officially working but is asked to “stand-by” ready to work.  The defining rule for stand-by time is that if the employee remains under the employer’s control to the point where they cannot use their time for their own purpose or benefit, the stand-by time must be paid. 
• On-Call Time.  On-Call time is different from Stand-By time in that it includes time spent by an employee “available” to be called into work while free to pursue activities for their own benefit.  The FLSA requires employers to compensate workers for on-call time when such time is spent “predominantly for the employer’s benefit.”  This means that an employee, who is only required to be available for work if asked, is not considered working and is not paid for their time on-call.
• Meal and Break Periods.  Under FLSA rulings, time spent for meal or rest periods may or may not be compensable, depending on the amount of time provided for the break and to what extent the employee is relieved from their work duties while on break.

Bona fide meal periods need to be of sufficient duration (30 minutes or more) and free of work duties in order for the meal period to be exempt from required pay regulations.  If, for example, an employee is asked to sit at their desk to answer phones during their lunch break, they should be paid for their meal break.  While employers can have policies prohibiting employees from leaving the work site for a meal break, it is only when work is required of them during the break, that their time must be compensable.    

Rest periods, on the other hand for shorter periods (5 to 20 minutes) are always counted as hours worked.

• Unauthorized Hours of Work.  Employees who, with the direct or implied awareness of their employer, start work before their work is scheduled,  work through unpaid breaks,  or continue to work after their work schedule is officially over, are considered to be working during all these times periods and their time “at work” must be paid.  This is true even if these hours of work were performed voluntarily and are considered by their employer to be “unauthorized.”  If the work performed during these “unauthorized hours” benefits the employer, the FLSA requires that the employee be paid.  This puts the burden on management to make certain that regular work time rules are rigorously enforced, perhaps even promising disciplinary action for employees who work in unauthorized ways.  Merely stating that all work be authorized is not sufficient.

For more information on the work rules outlined by FLSA regulations and as applied to either your temporary or hourly workforce, contact our infodesk@pacestaffing.com.

In the world of HR and business management, every era brings a new set of exciting opportunities, and along with those opportunities come challenges unique to the age. 2013 is no exception, and savvy hiring managers are already looking for ways to adjust and streamline their approaches to candidate sourcing, and screening in the year ahead. Here are a few of the most important ways in which recruiters, managers and HR pros will need to adapt.

Prepare for the 2013 Hiring Landscape

1. Optimize Mobile Utilities

A few years ago the world started to go digital, and companies that ignored or shrugged off the arrival of the Internet age did so at their peril. Those who weren’t ready to launch websites and start thinking about SEO were swept aside, and online selling and marketing are now commonplace for almost every business model, product, and service. Now it’s time for the next step: taking web utilities and making them accessible by mobile device. If talented job seekers can reach you online, that’s great. If they can reach you from a mobile device while on the go, that’s better.

2. Match Skills with Positions

Workforce shaping and in-house training are becoming watchwords for the next decade. It’s no longer enough to simply hire smart young candidates brimming with potential. In a world of increasingly focused and narrow skill sets, you don’t need ambitious go-getters; you need Level 2 CNC programmers, licensed and certified technicians, designers, engineers, and artists who specialize in your tiny corner of the marketplace.

3. Cultivate a Pipeline

How far into the future does your long-term staffing plan extend? If your answer is “three years or less,” that’s no good. Get the most out of your existing talent by making sure your best employees have a place to go when they’re ready to advance. And if you have a position that’s likely to open up during the next few years, groom and train someone in-house; you’ll mitigate risk and save countless resources when that day arrives.

4. Use Visual Media

Visuals are fast becoming the most effective message delivery system to your pool of talented potential employees. Find a way to incorporate graphs, illustrations, videos and multi-media into your job posts and other targeted information, like the “careers” tab on your webpage. Every open position in the company should have its own frequently updated blog, and that blog should be heavy with visual media and visual messages.

For more information on preparing your hiring strategy for the challenges ahead, reach out to the Seattle staffing and HR experts at Pace. Our years of experience allow us to look into the future and see what’s coming, and we can help you do the same.

The following article was published by the ASA, as written by A. Kevin Troutman of Fisher & Phillips Law Firm. 

As the New Year unfolds, supervisors may have even less time to manage all the complexities that arise in the world of employment law.  With goals and deadlines to meet, well-intentioned managers may be tempted to rely on experience and “common sense” to guide them.  Unfortunately, this approach often creates headaches and even litigation, despite managers’ good intentions.

Today’s alphabet soup of employment laws (ADA, ADEA, FMLA, OSHA, NLRB, etc.) are simply too vast and complicated for most supervisors to digest on their own.  Other issues are so subtle or counterintuitive that even seasoned HR professionals can find it difficult to recognize and/or deal with them.

There is a silver lining to this cloud.  A few basic practices can help supervisors avoid many problems—or at least recognize when to turn to HR for guidance.

1. Always tell employees the truth

This rule encompasses more than avoiding outright falsehoods.  Instead, it emphasizes the importance of making sure that employees always know how you assess their job performance.  Of course this includes telling employees what they are doing well—but perhaps even more important, it means telling them how and where they are not meeting expectations.  While many supervisors may prefer to avoid delivering “bad news,” this rule is an increasingly critical aspect of their jobs.

Performance evaluations illustrate this point.  Audits routinely show that well over half of all evaluations rate employee performance above average, a de facto impossibility.  Unfortunately, evaluations that overrate employees’ job performance can be devastating during litigation.  Judges and juries are generally unsympathetic toward supervisors who suggest that they did not really mean what they wrote on a performance evaluation.

This simple rule is so important that companies should consider discontinuing annual performance evaluations unless they can be done accurately and honestly.

2. Communicate clearly and directly

Going a step beyond Rule No. 1, supervisors should expect employees to do their jobs and cannot let “politically correct” language obscure their message.  Specifically, they must communicate clearly without being insensitive or disrespectful.

For example, instead of telling an employee that he or she has an “opportunity” to improve, identify what specific aspects of performance are below expectations and what must be done to improve.  Offer to assist, but make it clear that you expect improvement.  

When documenting these communications, be succinct and explicit. Always try to address “who, what, when and why.”  (As simple as it seems, this includes ensuring that documentation is legible, dated and signed where appropriate.)  This rule applies to policy violations, poor attendance and simple coaching or reminder sessions.

3. Avoid surprises

Many lawsuits result from anger or hurt feelings, which may be the result of an employee being surprised by disciplinary action or a termination.  Remember, a supervisor’s silence is typically interpreted as approval, but if communication is consistent, clear and direct, employees should never be surprised by disciplinary action.  They may not agree with the supervisor’s decision, but they should never be able to say truthfully that they did not see it coming.

4. Always get both sides of the story

It’s surprising how often supervisors violate this simple rule.  As a practical matter, there should be no exceptions to it.  No matter how egregious or clear-cut the facts appear to be, always give accused employees a chance to tell their side of the story. (The only possible exception might be when there is a legitimate objective or safety concern that would prevent this from occurring.)  Consistent with this rule, do not document conclusions or prepare termination paperwork until the investigation is finished.

5. Keep your promises

Don’t make promises that you cannot keep.  Supervisors who promise to meet periodically with employees or to provide periodic feedback must do so.  Again, jurors are unlikely to forgive supervisors who criticize an employee’s job performance, but fail to abide by their own follow-up schedule.  So do not set deadlines or timetables that you cannot meet—instead, maintain some flexibility.  Don’t make oral promises such as, “as long as you do your job, you will always have a place here.”  In some states, these promises can be legally enforceable.

6. Do not ignore protected status in making employment decisions

At first blush this rule may seem illogical, but when considering disciplinary action it is always important to consider how you have handled similar situations in the past.  If an employee in a protected classification (race, sex, religion, age, disability, etc.) is treated differently under the same circumstances from someone who is not in the protected class, supervisors and HR must be able to justify the reasons clearly.

When considering which employees fall in a protected classification, don’t overlook employees who recently took FMLA leave, sought an accommodation under the ADA, or provided information in response to an investigation of alleged workplace discrimination.  These activities protect employees from retaliation and likewise require consideration of comparable situations where no employee had engaged in protected activity.

7. Think before hitting “send”

Email traffic provides increasingly fertile ground for both sides in employment cases.  Supervisors must therefore recognize that their email messages are potential trial exhibits.  A quick, off-hand message has the potential to be extremely embarrassing if presented out of context to a jury.  Therefore, it is never a good idea to fire off quick responses, especially when emotions are running high.  Wait a few moments before hitting “send” and be especially careful about using the “reply to all” button.

8. Document important facts when they’re still fresh

Important details can easily get muddled in today’s fast-paced work environment, so make a habit of jotting down those key facts when they occur.  When doing so, be sure the documentation is dated, legible and understandable (see Rule No. 2).  Always include objective language describing “who, what, when, where, why” and identify any witnesses.  Identify the author of the documentation—sometimes nothing can be more difficult than retrospectively trying to determine who prepared unsigned material.

9. Send it to HR

When supervisors keep files containing notes or information that has not been forwarded to HR, it almost always creates problems when litigation ensues.  This can force the employer to change a representation it has already made to the EEOC or plaintiff’s counsel.

More importantly, it can support a plaintiff’s contention that the supervisor (who is usually the alleged wrong-doer) cannot be trusted or is hiding something.  On a related note, always refer employment verification and reference inquiries to HR, who will ensure companywide consistency in responding.

10. Never forget that you are the boss

Even during meal breaks, after hours, on weekends, or away from the workplace, supervisors still carry the mantle of company authority.  Unguarded, inappropriate or “joking” comments can and do come back to haunt supervisors who forget this.  When an employment relationship goes bad, seemingly innocuous comments often emerge.  Comments made in jest rarely look good in front of a jury.  This is a critical and sometimes painful lesson for supervisors to learn.

Bonus Rule 11

Always strive to be fair, consider “how would this look to a skeptical third party (like the EEOC or a jury) who knows nothing about me or the employee?”

The workplace is complex and demanding, especially for supervisors striving to meet deadlines, maintain positive employee relations and avoid legal pitfalls.  While they are not a “cure all,” these suggestions can help supervisors manage more effectively.

 So you’ve had a rough day. Or maybe you’ve had a rough year. You fought hard for your promotion to management, but the reality of the position isn’t playing out as you imagined. Or maybe you fought hard for your new job, you celebrated the day you received an offer, and now you’d rather die than spend another day in this nightmare. Or maybe, like countless professionals these days, you weathered the ups and downs of office life until the day you didn’t, and now you’re out on your own doing whatever you can to make ends meet until you can get your career back on track.

Whatever your position may be, it’s no picnic, and no crystal ball can assure you that things will look brighter by the end of the day, the week, or the even the decade. So what should you do? And how can you channel the optimism you need to carry you through this challenging chapter of your professional story?  Try these simple tips.

Staying Optimistic During Challenging Times

1. Line up your role models.

Many of the people who we consider paragons of “success” didn’t face an easy path on their way to the top. In fact, some of the most successful people in history struggled with crippling setbacks, disappointments, and episodes of uncertainty. Who are your adversity role models? Think of the person at the top of your list (either a famous name or a personal hero drawn from your circle of family and friends.)  Take a close look at this person’s life, and recognize that during his or her darkest periods, she was just as uncertain as you are about how the future would play out.

2. Stop negative thought cycles.

One negative thought (or imagined worst case scenario) tends to lead to another. So when you feel yourself losing your footing and sliding into a dark place, recognize that this is happening and do three things: 1.) Stand up from your chair or change your physical position. 2.) Take three deep breaths in and out for a count for five seconds each. 3.)  Switch gears and turn your unrealistic negative fantasies into realistic positive ones.

3. Fail hard, and fail smart

When you fail (which you will if you’re a human being), learn from the experience. But actually learn, don’t just surround yourself with cheerful sounding platitudes. The lessons your failure brings may not resemble the lessons you have in mind, or the ones you’ve absorbed from movies and TV. In fact, they may not look familiar at all and may be unexpected and utterly unique to your own life. Be quiet for a while and stay alert to the real lessons, the ones that will have meaning for you, and only you.

When you face a rocky stretch of road, remember that you don’t have to navigate your situation alone. You can, but you don’t have to. Reach out to the career management and staffing experts at Pace for insight, perspective, industry news, job leads, and other information that can help you find your footing and move forward with confidence.

A little flexibility in the relationship between employee teams and their employers can go a long way in terms of raising morale and can even have a dramatic effect on a company’s bottom line. Despite evidence supporting the positive influence of flexibility, many managers still see this as counter-intuitive and are reluctant to increase wiggle room in scheduling, time management, and company policy. But these managers do so at their peril. If you find yourself having a hard time releasing your grip on rigidity and corporate tradition, here are a few things to consider.

Reasons to Implement Flexibility

1.  Allowing proven and trustworthy employees to work remotely, even just once a week or a few times per month, can help these employees attend to other obligations and then move work to the top of their priority list. A strong work life balance means grounded, well-adjusted and focused employees, which provides a cascade of positive benefits for the company.

2.  Working outside the office actually appears to increase, rather than decrease employee work hours and overall productivity. The reasons behind this aren’t clear, but they may have something to do with the overcompensation employees often display when they aren’t used to working with low supervision.

3.  Allowing an employee to leave the office on a Wednesday and make up the hours on Thursday or Saturday can have a surprising impact on appreciation and company loyalty. This shift takes nothing away from you, or your business, but it brings disproportionate reward since it often means so much to the employee.

4.  Flexibility with company rules, rather than by-the-book rigidity, may seem to open the door to all kinds of grey areas and weaken the entire concept of “company policy”. But if you demonstrate a case-by-case attitude toward dress code enforcement, for example, it shows that the company culture is humane and reasonable. Just know where to draw the line; dress codes are one thing, but hard hat zones and safety violations are another. It’s also important to make sure flexibility is distributed fairly.

5.  A flexible approach to onsite versus offsite project completion also demonstrates that your organization is tech savvy and unafraid to rely on wireless connectivity. An increasing number of offices are not only allowing their employees to work occasionally offsite, but are in fact hiring full time remote employees who live in other states. This flexibility may be the key to attracting and retaining the best talent in the business, regardless of location.

For more information on the benefits of flexibility, or how to hire, manage, and retain offsite employees, reach out to the Seattle staffing experts at Pace. We can connect you to the best candidates available and help you hold onto them once they’re onboard.