The Berger Law Firm, P.C. |
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While the conventional image of a temporary employee is of a recently graduated English major toiling through a stack of files, the high tech workforce includes a significant number of highly specialized and well trained contingent workers hired as independent contractors. Generally engaged on a project-by-project basis, independent contractors afford companies flexibility in meeting cyclical production needs and the demands of just-in-time delivery, without the ongoing payroll, benefit, space, and taxation requirements associated with full-time employees. In the infamous Microsoft decision, software testers successfully sued for stock options based on an earlier IRS finding that they had been misclassified as independent contractors, as opposed to employees, for withholding and employment tax purposes. In Microsoft’s wake, the scrutiny of such relationships and the penalties for improper treatment have grown precipitously, and are likely to increase due to a recent Department of Labor (DOL) decision to enter the fray. Last October, the DOL filed suit against Time Warner on behalf of hundreds of workers it claims were unfairly denied pension and health benefits as a result of being misclassified as independent contractors. The suit, which represents a employee/independent contractor questionable expansion of the DOL’s authority under ERISA (the federal pension law), personally names company officials who had responsibility for managing benefit plans. DOL seeks retroactive benefits for the workers and an independent audit of the company. To support its action, the DOL examined each of Time Warner’s and its subsidiaries’ employee handbooks, benefit plan documents, and employee classification definitions for conflicts and instances where workers were treated contrary to the documents. While too early to tell, if the DOL is successful employers and independent contractors may be faced with a new set of employee classification rules which would greatly expand the universe of workers that must be included in pension, stock option, health and other benefit plans, and for whom employers must pay payroll taxes and overtime compensation. With the rapid evolution of high tech communications and mobile work arrangements, the workplace has developed contingent worker relationships that strain conventional employee/independent contractor distinctions. To clarify the ground-rules, the IRS recently revised a twenty-point guideline which identifies classification criteria. While somewhat flexible, the guidelines focus on who has the right to control the worker with regard to how, when, and where the work is accomplished. If the DOL suit is successful, employers could also be held to definitions established in company handbooks, policies, and plan documents, and potentially face retroactive benefit awards to improperly classified workers. In the highly competitive technology workplace, properly structured contingent work arrangements offer companies the ability to meet project-specific staffing requirements and acquire skilled workers without many of the administrative and financial burdens associated with employees. While significant legal pitfalls exist, employers who develop legally defensible independent contractor agreements, review employee handbooks and benefit plans for compliance, and properly classify employees and contingent workers can likely steer clear of such hazards and promote flexibility and efficiency in the workplace. © 1999 Jeffrey Berger REPRINTED FROM: |
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