Legislative Update – February 2014
“Show me the money” is line from an old Tom Cruise movie “Jerry Maguire”. In the movie the line is the mantra of Jerry’s (Tom Cruise) client, a pro football player. In this Essential Payroll Series update we use the line as a warning regarding two pieces of pending legislation at the federal level.
The first is called The Family and Medical Insurance Leave Act (S. 1810 / H.R. 3712). This bill would greatly modify the Family Medical Leave Act (FMLA). Currently FMLA applies to employers who have more than 75 employees in 50 mile radius and all public employers regardless of size. It provides 12 weeks of unpaid, job protected leave (26 weeks in some situations).
The Family and Medical Insurance Leave Act would require an employee be given 12 weeks of paid leave. The wages the employee would receive would be equivalent to 66% of their pay and would be financed through an employer tax of $ .02 of every $10 in wages, estimated to be about $1.50 per worker per week. This is essentially government sponsored short term disability coverage. This Act would apply to all employers regardless of size.
Our opinion is that the political climate in Washington will keep this bill from progressing; however this is the type of legislation that seems to draw lawmakers so the sticking point is likely to be the increased tax on employers. There are a couple of States that have state mandated benefits similar to the ones in the proposed legislation, so the template is available.
The second bill that may have a much better chance of being passed is called the Payroll Fraud Prevention Act of 2013. Whoa, FRAUD is a big term. Anytime you see the term fraud in bill this is not a good sign. People go to jail for fraud, they are penalized for mistakes. The bill’s sponsor states the bill is to address the “willful” intentional misclassification of employees as contractors, however in a brief review of the language; the bill does little to distinguish between “willful” violators and a mistake.
This bill presented in the Senate would make the misclassification of workers as independent contractors a freestanding violation of the Fair Labor Standards Act (FLSA). Currently the Wage and Hour Division of the Department of Labor enforces the independent contractor guidelines by forcing violators to pay minimum wage and overtime to misclassified contractors along with liquidated damages, this bill would add a layer of increased and new penalties.
Under the PFPA a company would be required to provide each independent contractor they hire with a notice that they are being treated as an independent contractor for tax purposes. The notice has to direct the person to the Department of Labor website and notify them the can find their legal rights at that site. In addition the notice must include the address and phone number of the DOL office. (I know what you are thinking, this is a set up to get people to call and report what they perceive as violations so the government can come in and audit, like a lead program for the Wage and Hour Division, maybe)
In addition, under the PFPA new penalties are instituted. Along with the current minimum wage and overtime payments an employer would be liable for liquidated damages that are double the amount currently assessed. The company would also be subject to a penalty of $1,100 per misclassified worker, for repeat offenders (called willful offenders) the penalty would sky rocket to $5000 per misclassified worker.
In our opinion this bill or a version of the bill is likely to pass as some point in the future. This issue of independent contractor classification costs the federal government billions of dollars each year in uncollected tax revenue. It is also possible that the dissolving of Section 530 relief currently available to employers could be a part of this legislation.
To get more information on how to make sure your company is not exposed to contractor misclassifications contact Gary (The Payroll Answer Guy) at firstname.lastname@example.org.