Tempting fate
October 28 - November 3, 2011
BUSineSS JOURnAL PhOTO | Marcus R. Donner
October 28 - November 3, 2011 | Vol. 32, No. 27 | pugetsoundbusinessjournal.com | $3.00
mAn And
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$3 million
Tempting Fate
Got ‘contractors’ who are really employees?
The IRS is offering amnesty if you come clean,
Got ‘contractors’
who
but some experts
warnare
thatreally
could employees?
be a mistake The IRS is offering amnesty
if youBy CMYK:
come
clean,
butright
some
experts
that could be a mistake
100C,
90M, 10Y
JULIA
ANDErSON
increased
Sept. 19, warn
when
the U.S.
Labor Department
Pantone process uncoated:
2945
CONTRIBUTING WRITER
announced an agreement with
Uncle ANDErSON
Sam’s autumn crack- taxes,
11 states,
includingand
WashingBy JULIA
benefits
protections. advisers — remain cautious about
down on companies that mis- ton. The deal enables all conexperts say the line between the IRS offer.
C O Nclassif
T R I B Uy T employees
I N G W R I T EasR con- But
cerned to share information
“The real risk is that the U.S.
contractor
and employee
isn’t
tractors is turning out to be a on worker classification
with
work inautumn
progress.crackdown always
the IRS that
and agencies
Department of Labor and state
Uncle Sam’s
clear. such as
The
Internal
Revenue
SerWashington’s
Department
of
on companies that misclassify
The stakes in getting it right agencies have different standards
vice announced last month it Labor and Industries.
employees
as
contractors
is
turnincreased
when
would give businesses that
Two daysSept.
later19,
came
thethe U.S. than the IRS for who is an indehad
is clas
si f y i ng Labor
IRS amnest
y offer — offiing out to
be been
a workmin
progress.
Department
announced pendent contract worker,” Lane
such workers
a
cially
called
The Internal
Revenue
Service an agreement
with
11 the
states, in- Powell’s Reilly said. “This may
chance to come
Voluntary Clasannounced
cluding
Washington. look good on the surface, but it
cleanlast
andmonth
avoid
sification Settleenables all could be poison.”
it would back
givetaxes.
business- “The iRS relief The
ment deal
Program.
Butbeen
the IRS
T he idea is to
to share
Confusion aside, there’s no
es that had
misconcerned
also threw cold
give
employers
offer
is
really
Viaduct
wrecking
thatgives
federal
and state firm c
classifying
such
workinformation
on work- questionjob
water
on its
ama chance to reers a chance
tofer
come
classification
with authorities are ramping up comnest y of
by whipped cream er
classify
workers
saying
it
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without
StEVE WILhELm
demoliton pho
efforts in the face of More
what
clean and avoid back
the IRS and agencies Bypliance
STaff WRITER
share informahaving to worry
pugetsoundbusinessjou
as Washington’s they see as improper worker clastaxes. tion about workon arsenic.” such
a b o ut p a y i n g
sification. drivers, the
But the
IRS
also
Department
of Labor
ers’ classificaback interest or
To Seattle-area
Rhine’s job was to
tion
with
other
penalties.
closure
ofRep.
the Alaskan
Way Via- part
of Seattle’s sou
mIchAEL
rEILLy
Jim McDermott,
D-Seattle,
and Industries.
threw cold water on
f
e
d
e
r
a
l
a
n
d
E
m
p
l
o
y
e
r
s
duct
was
just
something
to
get
in
just
nine days. Tw
LaNE POWELL PC
its amnesty offer by
Two days later came an advocate of tougher enforcestate agencies
must treat the
around.
firm’s giant concret
ment,
recentlyLLC,
called
amnes- some o
saying itthat
might
the
IRS amnesty
offer
couldshare
imworkers
as emTo Rhine
Demolition
it the
ing machines,
pose
their
own
ployees
going
was
the
biggest
job
of
the
year.
some
right chewe
information about workers’ clas- — officially called the Voluntary ty program a “step in the green,
penalties
and
rules.
forward,
and
pay
10
percent
sification with other federal and Classification Settlement Pro- direction.” Employers, he told
“The IRS relief offer is real- of the previous year’s payroll
state agencies
that
could
Theprogram
idea isistoopen
givetoemploy- Bloomberg News, “have been
ly whipped
cream
on impose
arsenic,” gram.
taxes. The
their own
penalties
and Reilly,
rules. who ers
a chance
tosizes
reclassify
warned
Michael
companies
of all
and hasworkers getting away with murder for
labor law
at Lane
no deadline.
“The practices
IRS relief
offer
is properly
without having to worry years.”
Powell PC in Seattle.
Despite that inducement,
The Obama administration’s
really whipped
arsenic,”
paying
interest or
Thesecream
mixedon
signals
are about
employers
— andback
their legal
W
most recent budget plan outlined
warned adding
Michael
who practo Reilly,
the complexity
of penalties.
advisers — remain cautious
an law
already
scarPowell
y scenario
the IRS offer.
tices labor
at Lane
PC about
Employers
must treat the work- how stricter IRS guidance that
for businesses. The govern“The real risk is that the
ers
as
employees
going forward, would reclassify some contracin Seattle.
ment has been stepping up U.S. Department of L abor
These pressure
mixed signals
are adding
pay 10
percent
ofdifthe previ- tors as employees could generate
on employers
who and
and state
agencies
have
T
misclassify
workers
to
avoid
ferent
standards
than
the
IRS
doi
to the complexity of an already ous year’s payroll taxes. The pro- $8.7 billion in tax revenue over
taxes, benefits
and protec- gram
for whoisis open
an independent
con- of all the next 10 years.
adm
to companies
scary scenario
for businesses.
tions. But experts say the line tract worker,” Lane Powell’s
T
Industries in Washington state
The government
has been
no deadline.
between contractor
andstepem- sizes
Reilly and
said.has
“This
may look
tem
BUSineSS JOURnAL PhOTO | Marcus R. Donner cial
isn’t always
that clear.
good
on the surface,
it
that are particularly
vulnerable to
ping upployee
pressure
on employers
Despite
that but
inducement,
T
he
stakes
in
getting
it
could
be
poison.”
attr
TRAnSPARenT:
Eric
Stowe,
founder
of A Child’s
Right,
home
who misclassify workers to avoid employers — and their legal tighter regulation include
Crushin
G
See AmNESTY | 28
shows filtration systems. When iron polluted a water supply and
in Nepal, the nonprofit disclosed the problem.
Government goes after
misclassified workers
builders, hotels and restaurants,
day care centers, janitorial services and logging.
Mike Subit, a Seattle attorney with Frank, Freed, Subit &
Thomas who often represents
employees in misclassification
cases, said neither employers
nor employees understand how
determined federal and state
agencies are in taking on the contract employee issue.
“Eight out of 10 times when a
case comes to me, the independent contractor agreement won’t
pass muster,” Subit said. “It’s a
serious problem.”
Carl Hammersburg, manager of
the state Department of Labor &
Industries fraud prevention and
compliance division, said worker
misclassification by Washington
employers is “significant.”
Last year, L&I conducted 5,100
compliance audits and found 69
percent of those employers with
a “reporting problem,” among
them misclassification. Total underreported taxes and workers’
compensation payments: $30
million.
“Employers can work simultaneously with us and the IRS to
reclassify employees,” Hammersburg said. “If a company wants
to change its reporting to us, to
come clean, we can work out a
payment plan.”
Hammersburg said his agency’s Q&A website that deals with
contract worker regulations has
received 4,000 hits.
“We set that up
in response to the
Tips for employers
needs of small busiState and federal authorities are giving more
ness owners,” he
scrutiny to the use of independent contracsaid.
tors. To avoid legal and tax problems, here
Small employers
are some suggestions for hiring contract
workers:
are particularly vulnerable to employee
— Consider using a temporary employment
misclassification
agency to make the hire.
regulations,
said
— Have a written document that spells out the
Kristina Hayek, a
work of the independent contractor.
Seattle educator and
— Check out Washington’s RCW 51.08.195 reguexpert on workplace
lations covering contract work.
human
resource
— Conduct a self-audit of your employee group
issues.
to make sure you are in compliance.
— Instruct managers and lower-level supervi“If an employer is
sors on contract work regulations.
not used to setting up
— Hire a consultant to bring you up to speed on
contract employee
contract law.
work, it’s really great
if they can use a third
Source: Lane Powell PC
party like a temp
employment agency,” Hayek said. “These folks are independent contractor,” Reilly
said. “You don’t give contract
experts.”
There are many reasons why an employees a key to the building
employer would want to use con- or a card that says they are an
tract workers for a special project employee. You don’t invite them
to the company picnic. They have
to hold down costs.
“It’s a way to tap into people to be treated like they are not emwith specialties without pay- ployees.”
As for employers who may be
ing benefits and all that,” Hayek
considering
the new IRS amnessaid. “But if employers are savvy,
they’d better get a good definition ty offer, Reilly advises that they
of contract work versus regular look at the big picture and carefully consider their wider vulneremployment.”
Lane Powell’s Reilly advises abilities and possible costs before
employers large and small to signing up.
“On its face, if you know you’ve
conduct a “self-audit” of their
employee group when entering got an exposure with the IRS,
into any contract worker relation- the program may offer a good
ship to make sure that the job is savings on taxes owed,” he said.
structured as close to federal and “But if you then have exposure
for state workers’ compensation
state standards as possible.
“You must have a written docu- and state unemployment insurment spelling out the work and ance payments, it could be a difthat this person is strictly an ficult situation.”
Reprinted for web use with permission from the Puget Sound Business Journal. ©2011, all rights reserved. Reprinted by Scoop ReprintSource 1-800-767-3263.