Feds, States to Investigate Construction Firms

The Department of Labor along with the IRS and eleven states have announced a broad review of the hiring and pay practices of home builders and other companies government regulating bodies proclaim routinely misclassify workers as independent contractors rather than employees. States include Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah, and Washington as well as New York, Hawaii, Illinois, and Montana.

On Monday 9/19, the federal agencies and top labor officials from the states agreed to coordinate enforcement efforts and share information about companies found to have violated labor laws, including denying workers minimum wages, overtime pay and benefits. The Labor Department recently sent requests to large home builders looking for pay and employment records.

The IRS is interested in the issue because employers don’t pay payroll taxes on workers classified as independent contractors. A Government Accountability Office report from 2009 estimated that the misclassification of workers cost the federal government $2.72 billion in 2006. As the Advi$or has recently noted, the misclassification issue has taken a higher profile in the past few years as cash-strapped states have focused on ways to capture more revenue and prevent employers from illegally failing to pay taxes on workers.

The proper classification between employee and independent contractor depends primarily on how much control or direction a business has over its workers. The more control– such as telling them where, when and what to work on as well as providing them with tools or equipment to work with– the more likely the worker is an employee. Employers aren’t required to withhold income taxes or pay Social Security or Medicare taxes for independent contractors. Nor do they bear the cost of the company match of Social Security or Medicare taxes. Meanwhile, independent contractors aren’t covered by many labor protections, including minimum wage and overtime laws, and unemployment or workers’ compensation insurance.

Regulators believe worker misclassification is particularly common in residential construction. Most large home builders in the U.S. typically don’t keep many laborers on their books and do little actual home construction. Instead, they entrust much of the construction to carpenters, plumbers, roofers, electricians and others employed by contractors. This reduces the companies’ costs and exposure to potential violations of labor laws.

There are many forces at work regarding this issue. There is the lost tax revenues. Organized labor sees abuse and would like more construction workers protected under unionization. Those businesses that operate according to the letter of the law note that it is difficult to compete with those that supposedly do not. And of course there are the companies who have been operating the way they operate for years who note that this kind of regulatory scrutiny only increases the cost of doing business and thus the cost of finished construction projects for all. 

The Labor Department also noted that it was looking at other industries in addition to home building including hospitality, janitorial services, agriculture, day care, health care and restaurants. A Labor Department report in 2000 estimated that up to 30% of employers misclassify workers.

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IRS Seeks Public Input on Obamacare

Treasury, IRS Seek Public Input on Certain Employer Provisions of the Affordable Care Act  

The IRS along with the Treasury Department has requested public comment on a proposed affordability safe harbor for employers under the shared responsibility provisions included in the Affordable Care Act that will apply to certain employers starting in 2014.

Under the Affordable Care Act, employers with 50 or more full-time employees that do not offer affordable health coverage to their full-time employees may be required to make a shared responsibility payment. Notice 2011-73, posted today on IRS.gov, solicits public input and comment on a proposed safe harbor, designed to make it easier for employers to determine whether the health coverage they offer is affordable. To that end, Treasury and IRS expect to propose a safe harbor permitting employers that offer coverage to their employees to measure the affordability of that coverage by using wages that the employer paid to an employee, instead of the employee’s household income. This contemplated safe harbor would only apply for purposes of the employer shared responsibility provision, and would not affect employees’ eligibility for health insurance premium tax credits.

Today’s request for comment is designed to ensure that Treasury and IRS continue to receive broad input from stakeholders on how best to implement the shared responsibility provisions in a way that is administrable, allows flexibility, and minimizes burden.  By soliciting comments and feedback now, Treasury and IRS are giving all interested parties the opportunity for input before proposed regulations are issued.

Submit comments by:

  • E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Notice 2011-73” in the subject line.
  • Mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2011-73), Room 5203,P.O. Box7604, Ben Franklin Station, Washington, DC20044.

The deadline for comments is December 13, 2011.

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New TN SUI Rate for Construction Co’s

The Tennessee Dept of Labor has announced that the unemployment tax rate for new construction companies has gone up from 8.1% to 8.6%. The new rate is effective July 1, 2011. The new companies can plan to maintain that rate for at least 3 years until they establish some employment history so that their rate can be adjusted accordingly. As you know the construction industry has been hit particularly hard during this current economic downturn resulting in above average layoffs and thus above average demands on the unemployment trust fund.

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NLRB Announces New Employee Poster Requirement

HR and Payroll administrators should take note that as a result of the National Labor Relations Act (NLRA), governed by the National Labor Relation Board (NLRB: 5 members – 3 Democrats, 1 Republican, 1 vacancy), recently announced that private enterprises that fall under the NLRA’s jurisdiction will be required to post a new employee poster by Nov. 14, 2011. Right now, all employers are required to put up posters informing workers of the FLSA, minimum wage laws and other worker rights. This NLRA poster informs employees of their right to organize. Under NLRA guidelines, any business that exceeds $500,000 in gross sales, or for non-retail businesses, exceeds $50,000 in out-of-state sales or purchases falls under NLRA jurisdiction. The number of employees is of no relevance.

Here is a link to the poster for your review.

The poster will soon be available from the NLRB web site at no cost. It must be at least 11 x 7 and it must be posted with all other employee posters.  If 20 percent or more employees commonly speak a language other than English, an additional poster translated in that language must also go up. If employers use electronic methods to disseminate employee information, that electronic method must also be used to inform employees of this NLRB proclamation.

Enforcement of the ruling is in question as well as the consequences for non-compliance. The NLRB expects pro union individuals to visit places of employment to make sure they are in compliance. If a business is not, the NLRB will “slap their wrist” and ask them to put up the poster. Failure to comply will not result in any fines or penalties but the NLRB can accuse the employer of “unfair labor practices” which can result in consequences as they relate to employee organization efforts. There is also some question whether the NLRB even has the authority to mandate such a posting. The Advi$or notes that in one of the first executive orders of his administration, Mr. Obama, in January of 2009, ordered all Federal contractors to post a similar poster. 

The value of such a proclamation is debatable. The pro labor side of the argument notes that collective bargaining puts more money in workers’ pockets, increases purchasing power and creates a stronger economy. On the other hand, employers note that a competitive market place does a pretty good job of ensuring fair wages and benefits for employees and that collective bargaining inhibits the ability to reward better workers for productive work habits. There is also the burden of the cost of compliance as well as the cost of administration if employees choose to organize. The market seems to support the latter argument as private sector union membership has shrunk from 35% in the 1950′s to below 7% currently. Also notable is the increased migration of individuals to right-to-work states as indicated in the 2010 census.

If you have questions regarding this requirement and your business, customers of Time & Pay can call our professional partner, SESCO, for free consultations.

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GSA Announces New Per Diem Expense Rates

Payroll administrators will be glad to see that the 2012 federal per diem rates used to substantiate business travel expenses within the continental United States were released by the General Services Administration. The federal per diem is equal to the sum of the federal lodging expense rate and the federal meal and incidental expense rate for designated areas of travel. The federal government publishes per diem rates for federal employees traveling on government business that may be used by other employers to establish allowances that will satisfy the substantiation requirements, according to the Internal Revenue Service.

Recall that the IRS recently announced that they were discontinuing the use of the High-Low method of substantiating expenses.  (Advi$or article 8/11/11)

For fiscal year 2012, the standard per diem rate is $77 to reflect the average daily rate for lodging across the country. Reimbursement for meals and incidental expenses remains unchanged from fiscal 2011, ranging from $46 to $71 for meals per day, depending on location, and $5 for incidental expenses. About 2,600 counties are covered by the standard CONUS (Continental US)per diem rate of $123 ($77 lodging, $46 meals and incidental expenses). For 2012, about 400 locations were assigned rates higher than the standard CONUS rate.

If an employer’s per diem rate is less than or equal to the federal per diem rate, the expenses are deemed substantiated and do not qualify as taxable income to employees. If the employer’s per diem rate exceeds the federal rate, amounts paid in excess of the federal per diem must be substantiated by employees or treated as taxable income.

IRS allows employers to apply federal per diem rates to substantiate business-related travel expenses for the government’s fiscal year, effective Oct. 1, or calendar year, if the employer elects to apply the rates on a calendar basis.

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