EMPLOYEE, CONTRACTOR, or SOMETHING ELSE? Why It Matters

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“What’s in a name?” asks Juliet—and so should business owners. Does it matter what you call an individual working for you? Though a rose might smell as sweet by any other name, not all labels are equal to the IRS. How you refer to your workers should accurately reflect your relationship with them, including how much responsibility you have for their taxes.

The Basics: Employees vs. Independent Contractors

Protecting yourself from liability and treating your workers fairly begins with understanding the difference between employees and independent contractors, but it doesn’t end there. Most people know to uphold minimum wage with, apply overtime provisions to, and pay over and withhold relevant taxes from employees. But who exactly counts as an employee? Since writing one off as an “independent contractor” can have financial and legal consequences, it’s important to make sure you grasp the official differences between the two.

Armed with this knowledge, you can start discerning special cases, such as when you should treat an independent contractor as an employee or, sometimes, a nonemployee.

Common-Law Employees

Common law dictates that anyone who works for you and whose work you have a right to control is your employee—no matter what you call them. ¹ There is no single litmus test to determine whether a worker is an employee, which the Fair Labor Standards Act defines as someone “economically dependent on the business of the employer, regardless of skill level”. ²

Of course, you can give an employee freedom, but they remain an employee so long as you retain the right to take that freedom away. A manager you don’t need to supervise and a part-time secretary whose work you dictate daily are equal, as far as employer-employee relationship status is concerned. An employer has the power to require a person to work or prevent them from working. Employees include individuals you lease out to clients and whose payment you control.

Having employees generally entails withholding and paying income, social security, Medicare, and unemployment taxes on any wages you give them.

Independent Contractors

While your right to behavioral and financial control marks the relationship between you and an employee, independence from your control marks the relationship between you and a contractor. Independent contractors are essentially people who get work done, for you and for others, in whatever way they want. Ultimately, they work for themselves; they are not economically dependent. In the words of the IRS, when it comes to contractors, you “have the right to control or direct only the result of the work and not the means and methods of accomplishing the result” (2014 Employer’s Supplemental Tax Guide 15-A).

There’s usually no need to withhold or pay federal taxes on payments to an independent contractor.

Common Differences Between Employees & Independent Contractors

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Other Classifications

In certain cases, an employee or independent contractor, as defined by common law, may be treated as something other for employment tax purposes. Statues have been written to address these particular situations.

Statutory Employees

A contractor may become a statutory employee if they are personally performing all the services themselves, don’t own the equipment or place they’re using, and work for you regularly. They must also be either a delivery driver (of a particular type), a full-time life insurance sales agent, someone who works at home according to your instructions and with your materials, or a full-time salesperson who sells your goods to other businesses.

You should withhold Social Security and Medicare taxes—but not federal income tax—from statutory employees.

Statutory Nonemployees

Three jobs do not fall cleanly into the employee or independent contractor categories. Though they might be working within an organization, the people in these jobs are usually considered self-employed for all federal tax purposes.

Direct sellers and licensed real estate agents are statutory nonemployees if their pay is related to performance rather than hours on the job, and if they agree by written contract not to be treated as employees for tax purposes. Companion sitters are usually considered statutory nonemployees, unless they work for a companion sitting placement service responsible for paying their wages.

Direct sellers, real estate agents, and sitters who meet these requirements are considered self-employed. If you hire them, you don’t need to withhold or pay over any federal taxes on their fees.

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Consequences of Misclassification

What happens if you classify an employee as an independent contractor? First, unless you have a good reason for doing so and have filed the appropriate returns, you are liable for their employment taxes. Secondly, you could be denying the worker benefits they need and deserve. Finally, Social Security, Medicare, state unemployment insurance and workers compensation funds, as well as the Treasury, all suffer.

The distinction between employee and independent contractor—and between contractor and nonemployee or statutory employee—is as important as it is nuanced. We’re always here to help you make this important case-by-case distinction.

The Deerfield Team
800.233.6428
j@deerfieldadvisors.com

  1. Department of the Treasury: Internal Revenue Service. “Publication 15-A: Employer’s Supplemental Tax Guide for use in 2014”. Accessed September 2014. http://www.irs.gov/pub/irs-pdf/p15a.pdf
  2. Department of Labor: Wage and Hour Division (WHD). “Fact Sheet 13,” revised May 2014. http://www.dol.gov/whd/regs/compliance/whdfs13.pdf

A Brief History & Overview – First in a Series on FMLA

Prior to FMLA~ 

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Prior to the Family Medical Leave Act of 1993, an employer could deny family & medical leave for any rea-son and even fire an employee for taking the leave. This became more of an issue starting in the 1970’s, as more woman be-gan to work outside the home. By 1990, the work force was 47% female and 53% male. Woman routinely lost their jobs when they took four or more weeks off to have a child, which limited career prospects for woman. The result of this was some mothers returning to work too soon, endangering their health, just to protect their jobs.

The Family Medical Leave Act (FMLA) was signed into law by President Bill Clinton on February 5, 1993, just 16 days after he took office, and the law took effect on August 5, 1993. This was a major part of President Clinton’s agenda during his first term, because of the concern about how the provisions for family & medical leave were being handled by US companies. FMLA provides a means for employees to balance their work and family respon-sibilities by taking unpaid leave for cer-tain family and medical reasons. The Act’s primary intent is to promote stability and economic security for families as well as the nation’s interest in preserving the integrity of families.

On January 28, 2008, President Gorge W. Bush signed into law the National Defense Authorization Act (NDAA), which amended the original FMLA to include up to 26 weeks of leave for a spouse, child, parent or other family mem-ber to care for an injured “covered service member” of the armed forces, and up to 12 weeks of qualifying exigency leave when the employee’s spouse, child or parent who is a covered military member on active duty or call-to-duty for one or more qualifying exigencies. Qualifying exigencies include: short-notice deployment, military events and related activities, certain childcare activities, financial and legal arrangements, counseling, rest & recuperation and post deploy-ment activates. Employers and employees can also agree on any other activities that constitute qualifying exigency.

On October 28, 2009, President Barack Obama signed into law the amendments to the NDAA that also im-pacted the FMLA by expanding the military family leave provisions of 2008; these provisions stipulated that “covered active duty” for a regular component of the armed forces means duty during deployment of the member with the Armed Forces to a foreign country. It defined the members of the reserve components of the Armed Forces (US National Guard or Reserves) as duty during deploy-ment to a foreign country under a call or order to active duty in a contin-gency operation defined in section 101 (a)(13)(B) of titled 10, Unites States Code. This amendment also expanded the military caregiver leave to include a veteran in the definition of “covered servicemember,” a veteran “who is undergoing medical treatment, recuperation, or therapy for a serious in-jury or illness,” if the veteran was member of the Armed Forces “at any time during the period of 5 years preceding the date on which the veteran undergoes that medical treatment, recuperation, or therapy.” The term “serious illness” was also expanded to include any prior injury or illness that “existed before the beginning of the member’s active duty and was aggravated by service in the line of duty in the Armed Forces.”

As of February 15, 2012, the US Department of Labor announced that it will publish a Notice of Proposed Rulemaking to expand military family leave provisions and leave eligibility for airline flight crew employees.

FMLA Eligibility 

As you can see, FMLA and NDAA amendments are very extensive and can be very confusing. That is why you need a solid personal leave of absence policy and make sure you are consulting with an FMLA specialist to cre-ate and implement the program.

All public entities are eligible employers under FMLA. Private entities must meet the following requirements to be eligible FMLA employers: 1) Employ 50 or more employees in 20 or more weeks in a 12 month period; 2) The 50 employees must work within a 75 mile radius of each other. When counting your employees, you need to include all employees — full-time, part-time, temp, seasonal, active and inactive. Inactive employees could be employees who are not currently working due to seasonal work, vacation or some type of leave.

3) Work at a location where at least 59 employees are employed by the Company within 75 miles, as of the date the leave is requested. Companies are still required to post all FMLA guidelines if you have 50 or more employees even if they are not in the 75 mile radius of each other.

In any case in which a husband and wife are entitled to leave and are employed by the same employer, the combined number of workweeks of leave to which both may be entitled may be limited to 12 workweeks for bond-ing leave (caring for newborn or adoption), and family care leave (care for a parent with serious health condition) Or 26 workweeks for military caregiver leave, during any 12 month period. Couples that are not married that work for the same company and are requesting bonding leave, are entitled to 12 workweeks each. Remember all eligible employees are protected from the date the leave request, not just from the start date of leave.

Reasons for FMLA leave can be confusing and asterisks accompany most all of them. We will review the list of reasons, but keep in mind before denying any FMLA leave, consult with a FMLA specialist or attorney to ensure the reason is not one of those asterisks. FMLA leave may be used for one of the following reasons: 1) The birth, adoption, or foster care of an employee’s child within 12 months following birth or placement of the child; 2) To care for an immediate family member (spouse, child, or parent with a serious health condition); 3) An employee’s inability to work because of a serious health condition; 4) A “qualifying exigency,” as defined under the FMLA for military operations arising out of a spouse’s, child’s, or parent’s active duty or call to duty as a member of the military reserves or National Guard in support of a “contingency operation” declared by the US Secretary of Defense, President or Congress as required by law; 5) To care for a spouse, child, parent or next of kin who is an Armed Forces member (including military reserves & National Guard) undergoing medical treatment, recuperation , or therapy, due to a serious injury or ill-ness incurred in the line of duty.

A serious health condition is defined by the following: 1) Any period of incapacity due to pregnancy and prena-tal care; 2) A chronic serious health condition (such as asthma, diabetes, etc); 3) A permanent or long-term condition for which treatment may not be effective (such as Alz-heimer, strokes, terminal dis-eases, etc; 4) To receive multi-ple treatments (including re-covery from) either for re-storative surgery after an acci-dent or other injury, or for a condition that would likely result in a period of incapacity of more than three consecu-tive calendar days in the ab-sence of medical intervention or treatment (such as dialysis, chemotherapy, etc. Health Care Providers are defined as the following: 1) Doctor of medicine or osteopathy; 2) Podiatrist, dentists, psycholo-gists, optometrists, chiroprac-tors; 3) Nurse practitioners, midwives, social workers, physician assistants; 4) Christian Science Practitioners; 5) Health Care providers approved by employer’s group health plan; 6) Provider outside of the United States who is authorized to practice in accordance with the law of that country.

Final Thoughts~ 

This was only a brief history and overview of the Family Medical Leave Act. There are many facets of the Act, so be on the lookout for future Deerfield Advisors’ white papers that will review topics such as what is required of employers, what employees are re-sponsible for, definitions of terms, how the ADA (American Disability Act) can affect FMLA, and best practices for complying with FMLA. The law is ever changing, so we strongly recommend that if you are an eligible FMLA company, you ensure your company has

a firm understanding of your responsibilities when it comes to FMLA. Keep in mind that not only can your company be sued, but also your managers and HR professionals can be held person-ally liable for any FMLA vio-lations. Feel free to contact us for further informa-tion on how to.

The Deerfield Team
800.233.6428
j@deerfieldadvisors.com

Making Better “Restaurant Employee” Hiring Decisions

waiter3diningHalf of all hiring decisions don’t work out; I hear money going down the drain of many restaurant establishments as I write this. The reason for this is pretty easy to deduce; either the restaurant owner makes the wrong decision or the candidate decides they are in the wrong job. When budgets are tight and failure is costly, the fine dining restaurant establishment cannot afford to hire the wrong person. So, how do you avoid being in the 50% of hiring decisions that don’t work out? Read on to gain access to the latest thinking and trends to “making better hiring decisions” for the fine dining restaurant establishment.

Why do some restaurant hiring managers make the wrong hiring decision? The number one mistake hiring managers make is trying to use a one size fits all hiring process—using the same assessments and process for each job. This type of thinking and process will almost always end in unhappy managers and employees within the new hires first 18 months. Before you can even begin to look for job candidates, you must define the job—what behaviors, knowledge, experience and personal attributes are needed to do the job? If you miss one of these four items you will probably misdiagnose, and miss the opportunity at identifying people that will succeed or fail as a restaurant employee.

The next step in defining job success is to determine what you are willing to sacrifice and how that sacrifice will affect your quality of hire. For example, am I willing to train or do I need people who already have the skills, experience, and knowledge to do the job? There will more than likely be some sacrifice needed or it could take you months to fill the position. Identifying those sacrifices the best you can up front will save you lots of time and money.

Selection System Integration ~

The second mistake many restaurant hiring managers make is failure to use and implement a proper selection system. A selection system consists of pre-employment testing, interviewing and on-boarding. Advancements have been made in pre-employment test/assessments and even application of job simulations to the hiring process. These tools are in the best interest of the candidate and the company and are great ways to provide a realistic preview of the job and to gather information in the context of the job, thus ensuring job compatibility. When preparing for the interview process, keep in mind that behavior based interviewing, which is asking candidates questions about their previous job experiences, is the most accurate way to interview.

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On-boarding once a candidate is hired includes orientation, training if applicable, development planning and mentoring. Implementing and adhering to a well designed selection system can make a major difference in a successful hire and your relationship with new employees. It also lends itself to assist you in identifying and resolving problems in your hiring process. Remember to always define success in the job properly & utilize the information found in the pre-employment assessments. I do want to point out that if you are using an RPO (Recruitment Process Outsourcing) company, you should maintain ongoing conversations about the assessments they are using and how those assessments are working in your hiring process. The best practice is to always provide the RPO recruiters and even your own hiring managers with the feedback you receive from new hires during the on-boarding process.

Crucial Questions ~

Once you begin using the selection system and seeing results, there are some crucial questions to ask to ensure sustainability of your selection system process. Are my assessments predicting success in the final interview and are they predicting win/win hiring decisions and predicting job performance & engagement? Does my final interview lead to acceptance at an acceptable rate? How do I compare to my competitors or a benchmark? And probably the most important question of all; how am I able to make predictions to increase talent in the future; given my business direction? Wow—that’s a lot of questions and seems a little overwhelming—so you may ask how to quantify this information. Well, the days of gathering information for a hire and after the hire is made just putting it in a file and forgetting about it is over; that information is very valuable and should be used to assess your hiring process and create a template for each job. Once you have hired someone for a position, you have started a job template to be used the next time the position or a similar position needs to be filled. This process of creating the template for the first time is not an overnight process and should take a minimum of 6 months to 1 year to complete.

The following list can be used as a road map to accomplish and gather information to create your job templates : 1) Candidate source is where you found the candidates or how they found you; 2) Assessment data is not only what assessments were used but how the candidates performed; 3) Once the final interviews are performed you should ask how satisfied your managers are with the quality of candidates; 4) You should track how often your job offers yield job acceptance; 5) During orientation, ask your new employee what they thought of the hiring process; 6) Follow-up interviews 6 months after the hire should be performed for the employee and mangers to determine how the hire is going and 7) One year after the hire you should review how the employee has performed and how they have engaged with your company as a whole. If, at this one year mark, you have happy employees & managers and enhanced productivity you can proudly say you have a “successful hire.”

Final Thoughts ~

Being open minded to change, combined with a little effort; can lead to avoidance of falling into the 50% of hires that don’t work category. But, more importantly, using the tools of defining your job, a selection system, and building job templates can save you money & time and leave you with happy restaurant employees which means enhanced restaurant operation productivity. And happier employees are less likely to decide they’ve chosen the wrong job. Remember, these steps work together, leaving one or more of them out will more than likely result in continued unsuccessful hires or create vulnerabilities in your hiring process. This is only a broad overview of these tools, so feel free to contact us for further information on how to begin implementing a successful hiring process for your restaurant.

The Deerfield Team
800.233.6428
j@deerfieldadvisors.com


DISCLAIMER

This article is intended only as a general discussion of these issues & we cannot guarantee the accuracy thereof, it does not purport to provide legal, accounting, or other professional advice. If such advice is needed, please consult with your attorney, accountant, or other qualified adviser. The Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Accordingly, the information provided herein is provided with the understanding that Deerfield Advisors is not engaged in rendering legal advice. Deerfield Advisors strongly advises that clients and/or the reader of this publication contact an attorney to obtain advice with respect to any particular issue or problem discussed here. Also, please know that discussions of insurance policy language is descriptive only. We strongly advise that one’s individual policy & ones advisor be consulted regarding this subject matter before any action is taken in any way. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. The Deerfield Advisor White Paper Series is a registered trademark of Deerfield Asset Management Inc. DBA, Deerfield Advisors and is produced by Deerfield Advisors for the benefit of its clients, and any other use is strictly prohibited. All rights reserved. Copyright © 2014.

How to Prevent Slips & Falls in Restaurants

no-slips-picts-blogdiningEven though restaurants are not thought of as a “high risk environment,” slips and falls do occur more often than they should and are the leading cause of injuries in the industry. It has been estimated that more than 3,000,000 restaurant employees and 1,000,000 restaurant guests are injured annually from accidental slips and falls. These accidents are costing more than an estimated $2,000,000,000 dollars a year.

With these statistics, it is essential that we become proactive by slowing down, stepping back & taking a look at our surroundings, and start focusing on preventing as many of these accidents as possible. Preventing the majority of slips and falls is actually pretty simple and well worth the effort, since these injuries equal loss of productivity, loss of time, and loss of profits.  As you know, restaurant injuries can be extremely costly because claims increase insurance expenses, and customer complaints or lawsuits are anything but good for business.

Restaurant owners and managers have a responsibility to ensure that their establishments are well maintained so staff and guests alike are safe. When management fails to do so and slip and fall accidents occur, they can be held liable. You can’t completely stop accidents from occurring;  you can, however, do everything in your power to make sure injuries are prevented and you are protected legally. A great place to start would be assessing the risk of a restaurant with The Occupational Safety & Health Administration’s (OSHA) free consultation. You can get more information about this consultation on OSHA’s website.

What are the major causes of slips and falls in the restaurant industry?  Topping the list—and estimated to be the cause of approximately half of the falls—are hazardous floors.  Restaurants should have a high-grade slip-resistant floor installed to reduce the likelihood of a fall. With the hustle and bustle and urgency to provide excellent service as quickly as possible to the restaurant guests, it is understandable that mistakes will be made and accidents will occur.  Drinks, food, oil, grease, and anything and everything else are spilled without the staff taking the time to properly clean up the mess. Not to mention all the debris left on the floor from the in and out traffic of the restaurant guests…  Therefore, even if you have installed slip-resistant flooring, the floors can sometimes still be dangerous. Slip and fall prevention starts with the floor surface. Property maintained floors should be a priority. When they are covered with appropriate floor coverings and kept as clean as possible, the risk of an accident occurring is substantially lowered, thereby keeping future insurance costs down.  Invest in top notch cleaners and slip-resistant waxes, and make sure they are used frequently. Install slip-resistant mats everywhere they are needed—such as in the kitchen area, around ice bins, drink areas, areas where grease and oil are used, or any area that tends to be wet.

Not only should the non-slip flooring be installed and maintained properly, make sure there are no tears or bulging spots in the carpet, broken steps, or any other risk areas.

Next, proper footwear is a must for all employees.  Another quarter percent of slip and fall accidents are due to inadequate footwear. Slip-resistant soles with a well-defined pattern should be required for all staff.  There is also the option of an overshoe.  This is a shoe that can be slipped over the employee’s shoe and shared among the workers.  The more friction between the floor and the shoes, the less the risk of a fall. Make sure the soles are kept clean for good traction. Remind employees to keep laces tightly tied, no open toes, and absolutely no high heels.

There are times when hazardous floors cannot be avoided, such as when it is raining and the floors are wet and slippery from the guests’ shoes.  At these times, it is mandatory that hazards be clearly marked by using wet floor caution signs. Even though there are many options, remember that OSHA requires the caution signs to be yellow with black lettering.  Good quality mats and a place to leave wet umbrellas are also a necessity. Keeping the floors clean, dry, and free of debris is a must!

A few other things restaurants should do to prevent slips and falls:

  • Make sure all walkways are clutter-free.
  • Make sure lighting is adequate, changing light bulbs as soon as possible.
  • It may be a rule you remember from elementary school, but remind your employees: NO RUNNING!
  • Encourage employees to clean up spills as soon as possible.
  • Have a ladder available for those times when employees are tempted to climb on a chair or something to retrieve an object that is out of their reach.

Preventing trips and falls can be accomplished by simply making sure the restaurant’s floor is properly maintained, promoting a shoe policy that encourages employees to wear the proper footwear, cleaning up the spills as soon as possible, displaying appropriate warning signs when necessary, removing the clutter, and by slowing down and constantly reminding the employees that safety always comes first.

The Deerfield Team
800.233.6428
j@deerfieldadvisors.com