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Ask Slashdot: Opinions on the State Breaking Its Own Law Against Employee Misclassification?

Posted by Soulskill on from the no-free-passes dept.

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.

24 of 165 comments (clear)

  1. So... by coldsalmon · · Score: 4, Insightful

    ...what's the question?

    1. Re:So... by cascadingstylesheet · · Score: 4, Insightful

      ...what's the question?

      He doesn't have one. He's ten steps ahead of you and doesn't want your advice. He precludes you contributing positively in any way you could conceive of.

      So ... yeah. Not sure WTF.

    2. Re:So... by FictionPimp · · Score: 2

      Obviously the question is "Fuck yea, government sucks!"

    3. Re:So... by cayenne8 · · Score: 2
      I dunno what the deal is here....

      This is how federal contracts have worked for years.

      Often, employees can get the WORST of both worlds...if they are hired as a W2 employee of the contracting house (usually the prime) of a federal gig. Yes you get some benefits, but you don't get the pay and freedom of a full blown contractor.

      If you can get your foot in the door and work things, it is best to try to incorporate yourself and maybe be a sub to a prime or sub to a sub(bottom line you are paid 1099)...in which case you know the drill, negotiate your bill rate to cover your paying your medical insurance, retirement, vacation/sick time off, etc.

      This can work out *GREAT* for you....sure they will give you core hours to be there and often they furnish you with equipment...at least the feds do a lot of the time for security purposes, but you get that indie bill rate, and ability to write things off and keep more of your hard earned money from the tax man. I especially like doing the S-corp thing...to help save on paying employment taxes (SS and medicare) on everything you bill for...a bit more paperwork, but worth it in the long run, IMHO.

      Anyway, I dunno what this guy is complaining about....but it has been this way for the past 17-18 years I've known about things in the govt/contracting industry, at least for IT systems.

      --
      Light travels faster than sound. This is why some people appear bright until you hear them speak.........
    4. Re:So... by Anonymous Coward · · Score: 2, Informative

      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.

    5. Re:So... by Anonymous Coward · · Score: 2, Informative

      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).

    6. Re:So... by tlhIngan · · Score: 3, Insightful

      Often, employees can get the WORST of both worlds...if they are hired as a W2 employee of the contracting house (usually the prime) of a federal gig. Yes you get some benefits, but you don't get the pay and freedom of a full blown contractor.

      OTOH, the employer has to pay payroll taxes of the employee, there's paid time off, etc. And well, the person doesn't have to seek out work when the contract's running out (because of the way things work, an independent contractor has the obligation to seek additional work to provide "independence" - you cannot have your contract renewed over and over again otherwise you can get classified as an employee.

      All that is why contractors are paid more money - because instead of benefits and perks, all that is cashed out. You take time off - you don't get paid, so you're paid more to compensate for that. The contracting company doesn't pay payroll taxes on you - that's now your responsibility, etc.

      Of course, the downside is you're cashing out your perks. If you're taxed at 25%, that means your paid time off is now taxed. So instead of taking 8 hours off, you got cashed out 8 hours, and effectively were paid for 6 hours.

    7. Re:So... by NicBenjamin · · Score: 2

      He wants your musings on the situation.

      Which is pretty much what he'd get, even if he actually had a question to ask, so I strongly suspect he's the only person whose ever done an Ask Slashdot after reading Slashdot.

    8. Re:So... by NicBenjamin · · Score: 2

      It's one of several forms that companies use to tell the IRS they paid you money.

      Employees get something called a W2, which has a detailed breakdown of their total earnings, how much of those earnings were taxable for normal income tax, Social Security Tax, medicare tax, and state and local income taxes. It also includes lots of tax-relevent info like contributions to your retirement account, and some non-relevent info that the Feds have decided you should have (the bit of your health premium paid by your employer is one of many things that can appear in Box 12).

      A 1099 is used by one business to report paying another business. If you're not an employee you're acting as a business, and you get a 1099. It has much less info because there's less to report (IIRC only the amount they paid you, and withholding for various units of government). As a business you are on the hook for your own Social Security and Medicare withholding, personal health insurance, etc. Many things an employer is require to compensate you for (such as work materials) are your own damn responsibility.

  2. legal risk by BradMajors · · Score: 4, Interesting

    It is not true the state is free from legal risk. I was in a somewhat similar situation and I was arguing that the contracting company was a sham and I was actually an employee of the original company.

    I received a big check to shut me up.

  3. Right vs wrong by Chuckstar · · Score: 4, Interesting

    Unfortunately, I often find myself in the minority on points like this. But here's where I typically come out:

    Everyone has a responsibility to report wrong-doing, when they see it. Even if this is not a legal responsibility, it is a moral one. Certainly, one can take this too far, and become a nitpicker. It's not one's responsibility to be a nitpicker. But it is one's responsibility to set a reasonable line in the sand, and when one sees that line crossed, then act accordingly.

    I get the sense you wouldn't be asking the question if you thought this fell into the category of nitpicking. The fact you feel the need to ask the question in the first place probably provides the answer right there. I believe you have a moral responsibility to not just look the other way. And this might involve risk to you. But where would we be as a society if people were afraid to take such risks in order to fix wrongs?

    1. Re:Right vs wrong by Anonymous Coward · · Score: 4, Insightful

      Obviously, legal != moral, but it's important to consider the reasons behind these employment laws.
      I've seen a lot of construction workers being taken advantage of by shady contractors who misclassify them. The workers are overworked, underpaid, and left without a lot of the protections that employees take for granted even in at-will, right to work red states. Competitors who follow the rules are regularly underbid by the cheaters. And how do you think a contractor who does this to his employees treats his clients? Keeping mum about these illegal practices is bad for us all.

    2. Re:Right vs wrong by Grishnakh · · Score: 4, Insightful

      The problem is that it isn't going to fix anything, and will just cause problems for him. This problem of treating employees as "contractors" isn't just with this state, it's everywhere. I've seen it with a bunch of small businesses with friends/relatives. Supposedly, the IRS takes a dim view of this practice, and allows employees to file SS-8 forms to report such employers, and force them to pay their proper share of FICA taxes and such. However, in practice, the IRS simply ignores these submissions and lets employers do whatever they want.

      But where would we be as a society if people were afraid to take such risks in order to fix wrongs?

      When society is so screwed-up that taking risks never actually improves things, and only results in trouble for the whistleblower, why bother? Face it, our current society hates whistleblowers. They're even called "rats". They're not well-perceived by anyone except a minority of people who are already malcontents.

      This guy is a software developer; the market for that profession is actually really good currently (though much more so in certain areas than others). He just needs to go find a new job. He'll probably get paid a lot more too. State governments aren't exactly known for being high-paying employers.

    3. Re:Right vs wrong by Frobnicator · · Score: 2

      What is the "wrong" exactly? Who is the victim? Work for a wage you see fit and the employer is willing to pay. If everyone is happy with their paychecks then there isn't really a morality crisis here. The rules (and costs) around employment are idiotic and this is simply a symptom of it. It's ridiculous how many rights employers and employees are losing. Lawyers won't touch this because the laws are dumb and there aren't any victims worth fighting for.

      Society at whole suffers with this, it is tax evasion for one thing, and it is reduced wages and benefits for another. The taxes collected are lower, so there is less funding to government by using an unlawful classification. It doesn't really matter if it is a private office or a government office that is the one evading taxes, the fact is that federal taxes and probably state taxes are being evaded. By hiring them as 1099 workers to avoid providing benefits like medical insurance, FICA and other taxes, time off benefits, and more, which is unlawful under the Fair Labor Standards Act.

      You write it isn't a moral crisis. The office is engaged in an unlawful act, and he is (directly or indirectly) making money from an unlawful transaction. It may not be as extreme as profiting from child trafficking or the drug trade, but it is still profiting from an unlawful transaction. If he is one of the contractors, he may also have other concerns, like not being covered for health insurance as required by law.

      You wrote that this is about losing rights. This is actually about tax evasion and about fair labor pay. In the story, he writes that the 1099'ers are getting none of the benefits of salary employees doing the same thing; which violates fair payment laws. In one case I know of where a family business tried this exact thing, the husband got 3 years in federal prison, the wife 1 year, the son who managed the company got 3 years, and millions of dollars in fines were levied against them collectively, all of it for variations of tax evasion and the Fair Labor Standards Act. In this case it is a government office breaking the law, but it is hardly a victimless crime, and often the perpetrators spend years in jail.

      And you write that lawyers won't touch it, that victims aren't worth fighting for. In practice, there are SOME lawyers who are willing to fight that kind of fight when it is the government breaking the laws. If you were the one working full time but not getting health insurance benefits or time off or other benefits given to the other employees, I'm guessing you would change your tune about it being 'victimless'.

      --
      //TODO: Think of witty sig statement
  4. Class Action? Similar story... by EMB+Numbers · · Score: 4, Informative

    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.

  5. Re:Sit down, shut up, and do your work... until... by cayenne8 · · Score: 4, Interesting

    ...but I've personally seen contractors doing the same work as employees for multi-year stints, just because it was easier to contract out than actually hire a permanent position. I've even seen positions intentionally left vacant, while contractors are hired to do that position's work.

    Yes..and SHHHHHHH!!!

    Don't start complaining about this. Those of us in the 1099 contracting game LIKE it this way!!

    There's nothing magical or that difficult about paying your own benefits!! Medical is easy, just get a high deductible policy (and many of them since obama care came out are this way) of about $1200 deductible, you can also set up a HSA (Health Savings Account) and sock away about $3K annually pre-tax....for your routine meds and co-pays, etc.

    You set up a solo-401K or IRA..whatever you like...and you know how to negotiate your bill rate to cover medical/retirement/timeoff and you're good to go. This way, you generally have MUCH more freedom with work (no more fucking waiting to *EARN* vacation hours...take them off when you want), and you can write off many things, driving to/from job site is a good one, equipment, and as I've mentioned before, if you set yourself up as a S-corp of one person, and pay yourself a reasonable salary W2 from your own company, you only have to pay employment taxes (SS and medicare) on that portion of your money, the rest falls through to personal income taxes at EOY..where only state and federal are taxes..and thats AFTER you take your deductions out.

    All you have to do, is be able to wear your big boy pants and keep up with a bit of paperwork yourself, be responsible with money (save enough to pay EOY taxes, make sure to pay quarterly taxes)...and also good idea to hire a CPA (deductible).

    You get more freedom to work like you wish, and you have a fighting chance to keep more of your hard earned money from the fscking IRS. And it is perfectly legal...

    There is NOTHING wrong with being a 1099 contractor, frankly, I think it is much better than being a regular W2 wage slave...and these days, face it, you don't get any more job security as a regular employee than you do as a contractor...so, you might as well contract and get the BILL rate that goes with it.

    --
    Light travels faster than sound. This is why some people appear bright until you hear them speak.........
  6. I'm being taken advantage of by rsilvergun · · Score: 3, Insightful

    What are my options to stop it? That's all he's asking. It's especially scary because the same govt that should be looking out for these abuses is actively participating in them. This is what happens when workers lose solidarity. They'll come for you and your wages next.

    --
    Hi! I make Firefox Plug-ins. Check 'em out @ https://addons.mozilla.org/en-US/firefox/addon/youtube-mp3-podcaster/
    1. Re:I'm being taken advantage of by Bite+The+Pillow · · Score: 2

      OP is not asking "What are my options to stop it?" - that should be directed to the lawyer he has already retained. Asking that here will get the response "Ask a lawyer".

      OP is asking what we think. I think I'm going to have a really nice shit in a few hours after what I just ate. I also think I don't understand

      "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."

      I get "none of the benefits or protections of regular employees", but they are usually paid more to compensate (as in we pay you the money we would pay towards insurance and other costs you pay for yourself). But I don't know what state is involved, so I can't define "Misclassification" and neither can the rest of us.

      I think I'm going to die in 35 years of natural causes, and I have a coworker who is cute but I would not want to date him/her. I think a lot of things. I could go on for hours, and it would be relevant because the scope of the question has not been restricted enough.

  7. It IS FRAUD by JimSadler · · Score: 2

    With luck you could make a fortune. Any time a business claims a person is an independent contractor numerous state and federal agencies are defrauded. Workman's Compensation can not charge the usual fees. Unemployment is also defrauded. Programs such as food stamps and welfare suffer losses and others I probably have not thought of. For example the supposed contractor will take all kinds of illegal deductions from his taxes. The fraud it enables is endless. In theory the various agencies could enforce existing laws and you would get a substantial living just on turning in the companies that violate the law. But here is the sad and demonstrable fact. Businesses who get caught get very mild punishments. The actual punishments are so few and so cheap that the businesses keep right on with the violations. Compare it with companies that make huge sums defrauding the public. They steal a billion bucks and are ordered to pay back only one hundred million. The message is loud and clear. Business is above the law and above the government. In my area the great offender is the phone sales and telemarketing racket. I could easily catch and turn in three companies every day of the week except Sunday. Almost none of these employees are in fact contractors. And pretty much every phone call they make is criminal. But make note that the government rarely shuts them down and when they do the punishments are so minor that they open up right away a few blocks down the street. American business is pretty much a criminal conspiracy and nothing more than that.

  8. Retain Better Counsel by dave562 · · Score: 2

    I am not a lawyer, but it seems like this matter likely has the potential to be turned into a class action matter.

    Not to troll for work on /., but if you need counsel with experience in successfully litigating large scale class action suits, get in touch with me. (replace the ve with rmstrong at gmail in my name) We work with some of the largest law firms in the world and routinely handle class action suits. I cannot list specific disputes due to client confidentiality, but they are some of the largest matters that have been settled in the last decade and have received plenty of media attention. There are plenty of firms who are not representing the large state that you speak of and they can easily pass a conflict check.

    If your attorney is advising you to go find another job and more or less ignore this, he is not the right person to be representing you. You are aware of the extent of the issue and the potential ramifications. Find a firm that also understands that and you all can make significant amounts of money.

  9. Is this a big deal by Etherwalk · · Score: 5, Insightful

    ...what's the question?

    The big question is whether state misreporting of employees and IC's is a big deal. Anonymous poster sees gross hypocrisy by his government and is told by legal counsel that it's not a big deal, wants others to weigh in so that he can better conceptualize how he should feel about this--he's looking to third parties for feedback on something that strikes him as morally suspect and affects his life. That's actually an incredibly healthy, rational, and unusual attitude.

    Is it a big deal? Yes and no. It's common to have people misrepresent employees as ICs in order to avoid the legal responsibilities of employment--that's *why* the IRS and various states crack down on it. So it's certainly not an *unusual* deal. And if you're making bank, it may not affect you much personally.

    But it may affect a lower-income worker who gets treated the same way by the state and is denied overtime benefits, or the woman who's discriminated against by the state's hiring process and finds it much harder to sue, or the corrections officer who doesn't get a pension, for example. So there's some reason to call the state out on it for the public good.

    There's *also* a strong argument that they should be called out on it because *they should have to put up with* the employment rules everyone else follows. They're the ones who change the rules, so they should experience having to live with them.

    So there are reasons to responsibly disclose, but not much personal benefit to you. You risk a whistleblower sign over your head for the rest of your career unless you do it intelligently. You could sort of go a middle-ground, where you don't go to the press, for example, but do include a note on your taxes that the state has deliberately misclassified you as an independent contractor as part of a systemic process that affects many thousands of employees. I have no idea if the IRS would do anything with it (I'm guessing not), but you would be reporting it. Ah, here we go, the IRS has a way to report fraud:

    http://www.irs.gov/Individuals...

    1. Re:Is this a big deal by _UnderTow_ · · Score: 2

      In what bizarro world do you think you live in where the people that make the rules are ever expected to actually follow them?

    2. Re:Is this a big deal by tylikcat · · Score: 3, Insightful

      Yes, this. The part I found the most disturbing was:

      "Maybe since we in the IT industry tend to be well paid, nobody should care, and there's no reason complain."

      There's a pretty significant portion of the tech industry that isn't necessarily well paid, nor do they have much in the way of job security. When times are good, they do just fine. When times aren't, they bounce between really marginal contracts and unemployment. (I replaced IT with tech because I've spent most of my time in software development, so most of my knowledge of IT as a field is somewhat second hand.)

      Tech culture tends to be all about individual achievement - and on the flip side, if you're not bringing in the buck, then you must be an underachiever, right? Which just means that if you are one of the workers who is more vulnerable, and if you are being exploited, there's more social pressure not to speak up about it, because you don't want to be labelled a whiner, when everyone knows that it's really that you couldn't hack it.

      (Just in case there's any doubt, while I'm a big fan of people doing cool stuff, and rather like to do cool stuff myself, I think the above is a rather stupid and short sighted approach to structuring a either a business or a society.)

  10. Are you contracted with the state or a company? by mr_mischief · · Score: 2

    If you're through a consulting company that sells your time to the state and managed like an employee then you're not an employee of the state. You're an employee of that consulting company. The arrangement between the state and your employer is one thing, and your arrangement with the consulting company is another. Your company can't sell your time on a regular schedule to the state and then tell you you're a contract employee. That doesn't mean the state can't contract for a company's employees to be assigned to work on-site at the state's offices, though.

    If you're on contract with the state directly, then they should treat you like a contractor. If they manage you as an employee, they need to employ you internally. If they want to keep you as a contractor, they should give you those freedoms.

    You need to know that this isn't just about you. Allowing yourself to be treated as an employee and compensated as a contractor weakens everyone else's position, too. In fact, there's probably a union like AFSCME that would be very interested to talk to you about this.