employee classification – Cooper Mann Consulting

Franchise FUD: Browning-Ferris Industries, the NLRB, and Joint-Employer Status

iconic An August decision by the NLRB is likely to have a broad impact in the coming years, forcing a great deal of change in how many businesses do business. While the issue may be under the radar for some business owners, those in the franchise industry are paying very close attention – which makes sense because the ruling could easily be construed as the beginning of the end for the franchise business model. At stake are the definition of “employer” and the determination of who is really responsible for the workers.

The issue stems from a 3-2 decision by the NLRB on a case involving Browning-Ferris Industries of California. Browning-Ferris Industries is a waste management company that contracted with another company – Leadpoint – to supply employees to perform a variety of work functions. Under the NLRB ruling, it was determined that Browning-Ferris was a joint employer with Leadpoint. What is interesting in this case (and where the FUD – fear, uncertainty and doubt – come in) is that “indirect control” of the employees became the primary factor determining whether a joint employer relationship existed under the National Labor Relations Act. Going against years of precedent, the board ruled that Browning-Ferris and Leadpoint were jointly employing the workers.

In the decision, the Board applies long-established principles to find that two or more entities are joint employers of a single workforce if (1) they are both employers within the meaning of the common law; and (2) they share or codetermine those matters governing the essential terms and conditions of employment. In evaluating whether an employer possesses sufficient control over employees to qualify as a joint employer, the Board will – among other factors — consider whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary, or whether it has reserved the authority to do so.

https://www.nlrb.gov/news-outreach/news-story/board-issues-decision-browning-ferris-industries

There are many who believe Browning-Ferris is a precursor to the pending proceeding against McDonald’s Corp. in which the NLRB general counsel charges McDonald’s Corp as a joint employer of its franchisees’ employees. Possibly in response to outcries of wage inequality and fast-food worker strikes to force an increase in the minimum wage, the NLRB seems to be adjusting its definitions in favor of the movement and may inadvertently destroy the foundations of the franchise business model according to some.

Clearly the franchise business model is in the crosshairs. In an article published on Law360 by David J. Kaufmann, Breton H. Permesly and Dale A. Cohen, the authors cite from the June amicus brief on the Browning-Ferris proceeding, in which NLRB General Counsel Richard F. Griffin Jr “directly addressed and attacked franchising, claiming that it was merely an “outsourcing arrangement” and insisting that franchisors are the joint employers of their franchisees’ employees because franchisors can exert significant control over the day-to-day operations of their franchisees”. No ambiguity there.

There have always been questions when workers are classified as contractors, forcing regulatory agencies to delve into the details of the relationship to determine whether or not independence actually exists. But this decision changes things in a big way. From Unions gaining more strength in forcing contracting organizations to participate in bargaining processes, to franchise businesses electing to run only company-owned locations to minimize exposure and risk, there is likely to be some troubling times for businesses large and small in the coming months and years as the new definitions take hold.

jmbunnyfeet Make Sense?

here’s a shortlink to this article http://wp.me/p2hGOJ-Om

In two previous “4 Rules of Thumb” articles, I discussed a few things that businesses can do to create the best possible environment for engaging new customers and providing quality service (4 Rules of Thumb for Business Success) and provided additional tidbits for service businesses – things the company can do to make sure that the work is done completely and correctly the first time, which is what leads to happy and loyal customers (4 Rules for Building Service Customer Loyalty).

This article is focused a bit more internally to the business, discussing a few of the risks and considerations surrounding those dreaded tax burden issues: Unemployment Insurance, Worker Classification and Workers Compensation Insurance.

Unemployment insurance is one of those items that most businesses pay attention to, because rates are impacted based on unemployment claims made and paid. The cost of unemployment insurance is usually calculated just like workers’ compensation, using standardized arithmetic formulas based on the profile and past record of the company.

Workers Compensation insurance is sort of the “elephant in the room” of compliance – it’s a big problem that is frequently the last item of consideration in business compliance and reporting. It is also an item that frequently goes without scrutiny at the state level, so little attention is generally given it by accounting and human resource professionals.

Workers Comp is one of those payroll reports where you select from a broad list of categories relating (hopefully fairly closely) to the work your people do, you calculate the cost, and you pay the fees.

Ideally you’re classifying workers properly in terms of their being employees versus independent contractors – this being the big focus of most workers comp audits and where many advisors say to pay attention. If you use a company to perform some of the work of your business, also pay close attention to the concept of joint-employer status (see article on joint employer status).

An equally big issue – the issue that impacts the business owner perhaps more than the employee – is classifying worker activities too broadly, potentially costing the business hundreds (if not thousands) of dollars in annual workers comp premiums. Improper classification of worker activities can lead not just to increased premium costs, but heavy penalties in the event of a claim finding the worker was not properly covered.

Most workers compensation policies issue blanket risk classifications, yet how these classifications are used in different industries is where the secrets of cost savings exist. In the moving and storage industry, for example, the risk is in the warehouse. If a clerk or administrative worker enters the warehouse, that employee is now actually working under a different classification. However, if the worker often checks warehouse inventory or sells items from the warehouse as part of their sales job, they may operate under yet another classification.

There is a balance required when seeking to reduce premiums while keeping the company compliant. Many companies consider caution to be more affordable than keeping highly detailed activity and work classification records, finding that reporting workers in higher cost work categories is more cost effective than paying for the labor intensive effort of capturing, analyzing and reporting in more detail. That is, until a worker is injured and the risk wasn’t disclosed through accurate workers compensation reporting.

When it comes to workers compensation insurance for the business, give these 4 compliance rules of thumb some strong consideration.

Rule 1: Get informed and get help.

It’s OK for a business owner to not be the expert in all facets of compliance and reporting – – you have accountants and tax advisers that can gain this knowledge from their annual CPE (continuing professional education). The potential costs of mis-handling workers compensation and other aspects of having employees are too great to risk being uninformed and unprepared.

Rule 2: Call an employee an employee

Classifying workers will turn out better for all parties in the long run even if it seems like the more expensive way to go. Misclassification of employee workers as contractors hurts everyone, eventually. There is a big problem with businesses misclassifying workers as contractors rather than as employees, sometimes to avoid paying taxes and benefits, but sometimes not just for that reason. When classified as contractors, workers are generally not covered by the various protections and do not get the benefits that employees do.

Some business owners who are unsure of the state administrative rules may pay workers compensation premiums for workers that are truly independent contractors. Other businesses may require workers to have a workers compensation account as a condition of employment. Either way it is being done improperly and one party or the other ends up bearing unnecessary cost and/or risk.

The unfortunate result is that employers are bearing larger than necessary burdens of supporting injured workers and the unemployed.

Deliberate mis-classification can save dishonest contractors upwards of 30 percent in payroll and other taxes, but for workers, taxpayers and honest employers, the practice amounts to millions in lost wages and revenue. – See more at:

http://www.ibew.org/articles/13ElectricalWorker/EW1305/Misclassification.0513.html#sthash.7u1vtjW

Rule 3: Details Details Details.

Worker classification done properly can save businesses a lot of money simply by being more accurate. Yes, there may be tradeoffs in terms of labor to perform the calculations and reporting, but it can prove to be well worth the effort.

Particularly in businesses where workers may perform multiple duties or work in a variety of locations and conditions, there is value in delving into the details of time, location and work performed to make sure the business is adequately covering itself. Filling out the report by simply selecting the broad category that “seems most likely” is not the best way to go. There are details in the rules, and the smart business takes advantage rather than being surprised by them.

A home installation satellite company did not keep sufficient records for their most hazardous business classification: tower work. During the audit, all their hours were assessed in this one classification that was six times the reported amount. – See more at:http://cath235lni.wordpress.com/

Rule 4: If there is a worker injury claim, pay attention and deal with it right away.

While it seems somewhat like getting car insurance after the wreck, there may be some risk mitigation that can occur if the issue is dealt with directly and in a timely manner – possibly avoiding a claims nightmare.

The last item is more of a suggestion than a rule, which is to be fair and truthful. Treating employees well is part of growing a successful team that will propel the business towards success.

Surprisingly enough, the benefits to the business may not only be a more productive and happier workforce, but lower risk exposure and lower workers comp premiums due to more detailed use of classifications in reporting.Tell employees and independent contractors what workers’ comp does for them – it’s essentially a medical and lost wage policy to protect them and those close to them.

Explaining to employees that keeping the boss informed about what is happening in the plant or in the field is simply part of helping ensure their proper protection.

Make Sense?

Many thanks to my friend Ted Carlson, Certified Fraud Examiner (retired), a veteran of the Department of Labor and Industries (L&I) in Washington State – responsible for Tax Discovery and Fraud Prevention field Audits.