Three Common Recession Traps For Stressed Employers
Kevin Ring | Institute of WorkComp Professionals
Asheville, NC (CompNewsNetwork) - Today's economic environment, where employers are pressured to adjust pay, reduce staffing levels and shift job responsibilities can unwittingly lead to costly decisions. Here are three common traps that employer need to be aware of:
1. Independent contractors
Due to economic conditions, there are more independent workers than ever before. With work demands more sporadic, some employers are hiring former employees as independent contractors. Contractor compliance is under increased scrutiny from the Department of Labor (DOL), the IRS and Workers' Compensation in many states. While the IRS offers guidance on the classification, (http://www.irs.gov/ taxtopics/tc762.html) there are many shades of grey. In addition, today, situations can change rapidly and correct classifications can change as responsibilities shift.
Here are some potential indicators of misclassification to watch out for:
• Independent contractors doing the same work as employees
• Independent contractors without control over when and how they perform their tasks
• Independent contractors without other customers
• Independent contractors doing work for which other businesses use employees
• Independent contractors paid by the hour rather than by the project
• Independent contractors working with a contract
In addition to the issue of misclassification, there is the issue of ownership of intellectual capital. Unlike employees, whose work almost always automatically belongs to the employer, independent contractors can retain ownership rights to the work they create. Employers need to protect themselves with a written agreement explicitly stating that the work is for hire and/or a copyright assignment.
2. Wage and Hour Violations
The DOL estimates that 70% of employers are not in compliance with the Fair Labor Standards Act (FSLA) and has increased its investigative staff by more than 30%. Common issues are exempt versus non-exempt employees, independent contractors vs. employees, off the clock time and furloughs and other disruptions to normal work routines.
In today's economy it's important to:
• Be aware of shifts in job responsibilities that affect the job classification
• Understand the relatively narrow definitions of exempt employees. For example, the most commonly misapplied classification, administrative employees, must be responsible for important decisions, as well as meet other criteria.
• Pay careful attention to the classification of independent contractors
• Advise supervisors not to require employees to work off the clock. Pressed to meet deadlines and keep costs down, supervisors may shave time off or require off-the-clock work in violation of the FSLA. Train supervisors regularly and be cognitive of incentives that can encourage violations, such as performance ratings and bonuses tied to minimizing labor costs, including overtime
• If employees are working from home, need to develop protocols for work assignments, time permitted, tracking and recording hours worked
• If furloughs are necessary, compliance with the “salary basis” test is necessary for exempt employees. Generally, if employees perform any work during a workweek, they are entitled to the full weekly salary (permissible deductions may apply).
• Be knowledgeable of applicable state laws.
3. Workers' Compensation
According to a Career Builder survey, nearly half of workers (47%) have taken on additional responsibilities due to layoffs at their companies. Understanding how the new responsibilities affect the employees' Workers' Compensation classification code is key to avoiding unpleasant surprises.
In addition, while the workplace injuries and illness incident rates tend to decline in a recession, it is primarily due to the decline in new job creation, according to The National Council on Compensation Insurance, Inc.'s (NCCI) report, Workplace Injuries and Job Flows. The findings also agreed with the evidence of moral hazard - workforce reductions lead to spikes in Workers' Compensation claims from opportunistic employees and found that rates rise during economic recoveries.
There are two messages here. One is to be vigilant about fraud. The other is that complacency can lead to higher rates during the economic recovery. Medical and time off costs continue to rise; obesity trends could result in increased injury frequencies and longer disability duration; an aging workforce means a longer recovery period; industry Experience Mod factors are affected by declining workplace place injury and illness incident rates, and disappearing investment returns mean that insurance carriers are no longer able to rely on premium investment returns.
When Workers' Compensation is made part of the business culture, the company is in a better position to stand solid in the months and years ahead.
This material is provided as general information and is not a substitute for legal or other professional advice.
Kevin Ring is the Director of Community Growth for the Institute of WorkComp Professionals, which trains insurance agents to help employers reduce Workers' Compensation expenses. He joined the Institute in 2003 after having managed IT systems for a mid-sized manufacturing company. A licensed property and casualty insurance agent, he is the co-developer of a new Workers' Comp software suite that will help insurance professionals in working with employers.
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Disclaimer: WorkersCompensation.com publishes independently generated writings from a variety of workers' compensation industry stakeholders. The opinions expressed are solely those of the author and do not necessarily reflect those of WorkersCompensation.com.