Workers and Regulatory Oversight

There are numerous, modern hiring options for business growth. These include traditional employees, independent contractors, part time workers, remote workers, and contingent workers and fractional C-Suite workers (the current hiring trend). The best option really comes down to what the business needs and how they will utilize the worker.

After doing her due diligence with Holly Human Resources, Barbara has recently engaged Emily Employee and Frank Freelancer to support her firm. That is when Barbara ran into Brandon Business Owner at a networking event, and he was nearly frantic. He had just received a letter from the Internal Revenue Service (IRS) asking for documentation on his independent contractors.

“Did you misclassify your workers?” Barbara asked Brandon.

“I’m not sure what that means.” Brandon admits.

Barbara offers to share what she has learned but also encourages him to follow up with a workforce professional to help make recommendations.

“Here is a crash course …  “

The Regulatory Landscape of Worker Compliance

Several agencies at the federal, state, and local levels, maintain regulatory oversight over worker compliance. In fact, it occurs often more than business owners realize.

At the federal level, the IRS and Department of Labor (DOL) are the most involved in worker compliance. State labor departments, worker compensation boards, and other agencies also ensure employers comply with the local regulations. Additionally, city and county governments at the local level may also enforce relevant statutes.

It’s common to see these agencies enforce overlap responsibilities and regulations.

Let’s dive a little deeper.

Workers and The Internal Revenue Service

The IRS classifies workers as either 1099 or employees based on whether the employer dictates what work is done and how, the amount of financial opportunity a worker has while fulfilling their roles, and the nature of the working relationship between the business and the worker.

The IRS’s primary concern is enforcing tax laws and regulations. They want to ensure that employers withhold and remit taxes for employees, and that 1099 workers meet their tax obligations.

The IRS may conduct audits and investigations of a company’s or freelancer’s records to ensure compliance with tax laws. If either is guilty of non-compliance, the IRS can impose penalties and fines on such business.

Workers and The Department of Labor

The primary concern of the DOL is to ensure that those classified as employees receive their due protection and benefits, primarily minimum wage, and overtime.

The DOL relies on the Fair Labor Standards Act to define either 1099 or employee on several factors, such as how crucial the worker’s job is to the employer’s business, how long the worker has / will work for the employer, and how much of the job done is controlled by the employer. There is no one, single most important factor in determining worker classification. These parameters help the DOL determine who is entitled to certain benefits and protections such as overtime, paid leave, minimum wage, etc.

Much like the IRS, the DOL may conduct investigations and audits to ensure labor law compliance and impose penalties and fines on non-compliant businesses. They may also prosecute in court when necessary.

There are other agencies at the federal level that have a hand in employee and workplace compliance. When it comes to worker classification, these are the primary agencies defining when a worker should be a 1099 or employee.

State and Local Regulations

Regulatory oversight on compliance does not stop at federal agencies. State and local governments also have their own set of worker protection regulations, such as disability laws, minimum wage, training requirements, and workers’ compensation. They may also impose additional employment taxes.

While these regulations don’t concern themselves as much with what qualifies a 1099 vs an employee, they may conduct audits and investigations for violations. State and local laws and regulations compound with the federal and the employer is responsible for meeting the greater of the two, meaning that the rule that provides more benefits or protections must be met.

Worker compliance at every level presents a unique set of challenges for employers, and non-compliance is always a costly route in the long run.

Contact us today to help create a strategic plan for your workforce needs.

ClearPath is a leading Human Resources Outsourcing company focusing on assisting employers to leverage the independent contractor labor market. We’re committed to helping business owners stay compliant and minimize the risks associated with their contingent labor requirements.

No Legal Advice Intended. This article includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues.