How CW Management Became More Complex and Difficult

ThinkstockPhotos-78431709Contingent labor is now a crucial cornerstone for many companies. Often dubbed the new “on-demand workforce,” contingent workers provide organizations with greater flexibility, increased efficiencies and better business outcomes. These highly skilled workers can be the difference between a successful project that is completed on time and on budget, and one that spirals out of control or perhaps is not even completed.

Yet in just the past few years, management of the contingent workforce has become increasingly more difficult and complex. Passage of new laws and reinterpretations of existing ones by the court system are the principle driving factors. These break into three areas.

Patient Protection and Affordable Care Act

Enforcement for the first phase of the Patient Protection and Affordable Care Act (ACA) went into effect at the beginning of the year, and additional requirements and coverage enact at the beginning of next year. Uncertainty concerning the law’s permanency was largely resolved with the recent US Supreme Court King v Burwell decision that confirmed the law is likely here to stay.

Those using as well as supplying contingent labor need to ensure they have the right systems and processes in place to comply with ACA. Failure to do so results in significant penalties that become more burdensome over time until compliance is achieved.

Companies uncertain about their compliance with ACA need to create a checklist to verify and maintain their compliance. This list includes organization size, worker classification, the employer mandate in ACA, the logistics of execution, and the penalties and costs of noncompliance. A detailed examination of these issues is found in our recent White Paper on “The ACA and Contingent Labor.”

Paid Sick Leave Laws—State and Local

New laws on paid sick leave are gaining momentum. Just recently, Montgomery County, Maryland and the State of Oregon became the 23rdand 24th places respectively to pass paid sick leave laws.

These new paid sick leave laws require companies to track hours worked and to accrue paid sick leave based on hours worked. Part of the challenge here is not all organizations have systems and processes to track paid sick leave. The other aspect is that while there are similarities between these new laws, there are also differences.We discuss these in a recent Fact Sheet on “Paid Sick Leave.”

How these are tracked and managed becomes important, as there are significant penalties associated with organizations that fail to comply. PRO has found that it requires an integrated services and technology approach to address the requirements adequately.

Worker Misclassification and Co-employment

Worker misclassification is not a new issue. The IRS’ common law test for employment has been around for a long time, with the original list of 20 factors reduced to 13 factors in 1996 and subsequently narrowed to three “Categories of Evidence” buckets — behavioral controls, financial controls, and relationship of the parties. We published a Solutions Brief on “Worker Misclassification and Co-Employment” as a guide on the subject.

The different factors used to classify workers under the different tests used by federal agencies such as the IRS and Department of Labor, as well as numerous state law tests,have been challenged in administrative proceedings and in court many times over the years. This has resulted in a patchwork quilt of multiple interpretations that must be considered. As a result, depending on the location of contingent workers, the legal analysis for classifying those workers as employees or contingent differs.

  1. More stringent in California. Worker classification in California became more stringent last year as a result of a ruling by the state’s Supreme Court. In Ayala v Antelope Valley Newspapers, the Court decided a “wage test” versus a “financial controls test” should be used to determine worker misclassification.

Instead of the amount of control the company actually exercises over a worker, the Court determined the company’s right to control the manner and means by which the work is performed is the most decisive factor used for worker classification. Specifically, if the company retains the right to discharge the worker, then this is evidence, according to the Court, that the worker is an employee and not an independent contractor.

  1. “ABC test” in New Jersey. In a decision last year, the State of New Jersey’s Supreme Court diverged from using a combination of tests, including the Fair Labor Standards Act, to what is known as the “ABC test” consisting of three elements — employer control, type of work and type of enterprise. This decision expanded the interpretation of worker classification by “casting a wider net” than before. The result is workers who qualify as contractors under the IRS Categories of Evidence may well not qualify under New Jersey state law.
  2. Re-expansion in Washington state. The Washington state Supreme Court recently ruled all 13 of the factors used under the Federal Labor Standards Act (FLSA) “economic realities” test for employment status apply to claims brought under Washington’s Minimum Wage Act.In another case, the federal Ninth Circuit Court of Appeals limited the number of factors it considered in applying the economic realities test, but the Supreme Court concluded all 13 factors must be employed when applying the test under the state’s wage and hour laws. While the Court’s decision to apply this more detailed approach for worker classification only applies to the state of Washington, but is likely to influence the courts of the other eight Western states as well as Pacific territories that come under the jurisdiction of the Ninth Circuit Court of Appeals.

Navigational Guide

With all of these different changes in tax and benefit laws and regulations, it is easy to understand why a growing number of companies are turning to outside assistance for help in managing the related risks. Further, the complexity of these recent changes makes it even more difficult to remain in compliance and to avoid the penalties and costs if noncompliance occurs. These are reasons why growing numbers of companies are turning to third-party experts and technology to manage their contingent labor programs.

Andrew Popler

Andrew Popler
Andrew Popler is the head of business development for PRO Unlimited.

Andrew Popler

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