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Ask Slashdot: Opinions on the State Breaking Its Own Law Against Employee Misclassification?
An anonymous reader writes: I've had the privilege of developing software as an independent contractor for various agencies of a particular state for many years. These past few, however, have seen changes: now I, and almost every other contractor I know, are being managed very differently. This state is now making a widespread practice of using the businesses it awards contracts to as staffing agencies, knowing full well that the people coming in are 1099s and receive none of the benefits or protections of regular employees. These contractors are expected to be on site full-time, are not allowed to use their own hardware or software, and are managed alongside, and perform substantially the same work as other, regular employees. This is apparently done to cut costs.
The State has no legal risk here — that rests solely on the businesses it awards contracts to. But given that this particular state takes a hard line against misclassifying employees, this strikes me as profoundly hypocritical. I am not here to ask for legal advice. Indeed, I have already retained counsel in this matter. Considering additional detail that I won't get into here, Federal law is likely being broken. Since this is also one of the states that have the strict 'three prong' test for classifying employees, the State's own law is definitely being broken.
I thought, maybe somebody should say something. But my lawyer's reaction surprised me. He said — this isn't a big deal, you could just go find another client. And you know what? He's right. I could totally do that. Maybe since we in the IT industry tend to be well paid, nobody should care, and there's no reason complain. I'm not asking for legal advice or a recommendation as to what I should do personally; I'm still forming an opinion on the larger issue here, and I'd like you to share yours.
The State has no legal risk here — that rests solely on the businesses it awards contracts to. But given that this particular state takes a hard line against misclassifying employees, this strikes me as profoundly hypocritical. I am not here to ask for legal advice. Indeed, I have already retained counsel in this matter. Considering additional detail that I won't get into here, Federal law is likely being broken. Since this is also one of the states that have the strict 'three prong' test for classifying employees, the State's own law is definitely being broken.
I thought, maybe somebody should say something. But my lawyer's reaction surprised me. He said — this isn't a big deal, you could just go find another client. And you know what? He's right. I could totally do that. Maybe since we in the IT industry tend to be well paid, nobody should care, and there's no reason complain. I'm not asking for legal advice or a recommendation as to what I should do personally; I'm still forming an opinion on the larger issue here, and I'd like you to share yours.
It means you are treated as a contractor who is paid directly without (normally) the removal of payroll taxes. It means that the individual is responsible for his or her own health insurance and other benefits as well as income tax payments.
IANAL, but ...
Many years ago, I worked in the USA for a Canadian Corp. The Corp. routinely bounced payroll checks, delayed sending payroll checks, or wrote payroll checks for less than the amount owed. Every time theses things happened, the Corp. claimed it was difficulties with exchange rates and transfers to the USA bank from which pay checks were drawn for USA employees.
I happened to work right across the street from a US Federal Building, so one day, several co-workers and myself walked over to inquire about any remedies that might be possible. We provided documentation to the helpful FBI agent who said bouncing payroll checks could fall under FBI jurisdiction. I also happened to mention the situation to my congressman who I knew socially as a long time family friend. A few weeks later, a Treasury Department person called and told us that nothing could be done to induce better behavior by a Canadian Corp. with respect to USA "employees", and furthermore, we weren't employees. We were considered independent contractors from the point of view of the Canadian Corp. Apparently, a shell USA Corp. employed us as regular employees with benefits and then contracted with the parent Corp. for our time. We received W-2 instead of 1099, but we were effectively 1099 contractors. The Treasury representative seemed to be telling us that we were not protected by USA labor laws or banking laws.
Treasury representative's statements didn't seem right, and we asked many questions to clarify our understanding. Several of us asked a local lawyer about the situation, and the answer we got was that any court action would have to start in Canada, and any settlement would be consumed by attorney fees. In other words, it wasn't worth it.
After a while of continued mistreatment, all of the USA employees except a few salesmen who worked on commission moved on to greener pastures. Such is life.
1099 is the number of the form used by companies (or individuals, in some cases) to report to the IRS payments made to non-employees. Recipients of said 1099s are responsible for paying all the income tax, social security tax, etc, on said payments. (There are subcategories of 1099 for reporting other kinds of payments, such as royalties, interest, etc.)
In contractor speak it means you're getting paid as an independant, rather than a regular employee (employee earnings are reported on a form W-2, and it's up to the employer to deduct taxes, pay the employer's share of social security, etc).