It’s “What’s Up? Wednesday”. Time to talk about EXEMPT PAY . . .

You asked: “Can employers deduct from exempt employees’ weekly salary if they run out of sick time? And do they have to be paid if the office is closed for inclement weather?”

Alex answers:

According to the Federal Labor Standards Act (FLSA), if an exempt (“salaried”) employee performs any work during a given workweek, he/she must be paid his/her full salary for that week. Of course there are a few exceptions. These include (but are not limited to) an absence due to personal reasons; a suspension due to a violation of safety or conduct rules; the first or last week of employment; or when the employee is on a medical leave under the Family Medical Leave Act (FMLA).

As we’ve seen across the United States this winter, the weather can lead to emergency closures for businesses. Keep in mind that if you are forced to close temporarily due to inclement weather, under no circumstances can exempt employees go unpaid. The same rule applies if the exempt employee is out for jury duty. They must not go unpaid.

Time out due to illness for an exempt (“salaried”) employee is a little trickier to navigate.  Generally, the exempt employee must be paid for all absences due to his/her own illness. However, the employer can certainly require the employee to use paid time off (sick, vacation or personal time). In the event that the employee has run out of paid time off or is not yet eligible for it, they must be paid for the days off UNLESS the employer has a bona fide sick leave plan. A bona fide sick leave plan is a plan or policy that has defined sick leave benefits that have been communicated to all employees and is administered impartially. This plan must also allow for a “reasonable” amount of paid sick days for exempt employees. There is no clear definition of “reasonable,” but generally the Department of Labor has considered a minimum of five (5) days of paid sick time off to be acceptable.

In a nutshell, for those employers who do not have a defined, written sick time or paid time off (PTO) policy, you’re going to have to pay exempt employees for all sick days, even if you have given employees sick days and they exhausted them. You can get around this by implementing a defined, clear policy that allows exempt employees at least five days of paid sick time off in a given year.

And finally, keep in mind that if an exempt employee comes into work for a portion of the day (even if it is just 10 minutes) he/she must get paid for the entire day.  It must be a FULL day absence to dock exempt employees pay, even with a bona fide sick leave plan.  Exempt employees get paid full day salary for even small amount of work in a given day.

Last, but not least, none of what is explained above applies to non-exempt (“hourly”) employees . . . they are easier to handle. Simply put, you are only obligated to pay a non-exempt employee for the time that they actually work.

If you have any other questions about employee classifications, send them to hrhelpline@eastcoastrm.com.

EDITOR’S NOTE: Just a reminder that our blog will no longer be accessible through this web address as of February 24, 2014!!! Our new home is the East Coast Risk Management web site at www.eastcoastriskmanagement.com. If you have not subscribed yet or are already a subscriber and haven’t yet re-subscribed at our new location, now is the time! Simply click here and enter your email address in the box to the right of the blog, then hit “subscribe”. Be sure to check your email to confirm your subscription.

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The Cupid Cop: When Love Strikes in the Office

by Renee Mielnicki, Esq.

Depending on which survey you read, as much as 60% of today’s workforce has engaged in a romantic relationship at work. Of those, about 20% claim to have been romantically involved with the boss. Shocking numbers have also been reported showing that either one or both parties are married and are therefore engaging in an extramarital affair at work.

There are many theories out there as to why these numbers are so high. Perhaps the growing number of women that continue to enter the workforce has lent to this percentage rise. Others speculate that an increase in the number of hours worked each week has something to do with it. Consider the fact that even if the average worker is working a regular 40 hour work week, he or she still may be spending more time with coworkers than at home. This factor alone may lead to stronger personal attachments to coworkers.

With Valentine’s Day approaching, flowers and candy will soon be floating down the hallways at the office.  Given the poll numbers, as well as the negative effects that these relationships may have in the workplace, employers are left wondering what to do when Cupid’s arrow strikes in the office.

Let’s first examine the risks an employer faces when a romance develops between two of its workers.  Relationships between a supervisor and a subordinate carry the most risk both legally and from a business perspective.    Since employers have a heightened standard of liability for sexual harassment committed by supervisors, even claiming consent by the subordinate may not shield the employer from liability.  Subordinates may feel that consenting to a sexual relationship with the boss is the only way to keep their job.  Sex-related conduct that is “voluntary,” in the sense that the person was not forced against their will to participate, may not be a defense to a sexual harassment suit brought by a subordinate against a supervisor.  The question is rather whether the sexual contact was welcome and continued consent was voluntary.  The appearance of favoritism is also an issue.  Other co-workers may think that the employee gets unwarranted preferential treatment.  This can result in resentment which then can reduce overall employee morale and productivity.

Romance between coworkers can also lead to sexual harassment claims, particularly when a decision to end the relationship is not mutual. The scorned party may use poor judgment and continue to pursue the other employee to the point that the advances are no longer welcomed.  That employee could then file a sexual harassment claim since the harassment is occurring in the workplace.  Even if coworker romance doesn’t result in a law suit, trauma from breaking hearts coupled with sharing office space with that former special someone can lead to conflict or reduced productivity for these employees.

Employers have several options as far as being a Cupid Cop in the office.   First, employers can establish an anti-fraternization policy which strictly forbids romantic relationships between any of its employees.  The advantage of such a policy is that the employer can use the policy to help defend itself in the event of a sexual harassment lawsuit.  Pointing to the policy as evidence that fraternization among employees is sticky forbidden, as well as evidence of a sexual harassment policy and employee training, can help defend such a claim.

Before implementing a flat ban on workplace romance, employers should also consider the disadvantages of such a ban.  Employees may feel that the company is dictating rules about their personal lives and is invading their privacy.  This type of policy could also have the “forbidden fruit” effect making these relationships all the more appealing for thrill seekers thereby making the prohibition increase the harm.  Moreover, the employer could lose good employees who want to engage in a personal relationship with a coworker, but choose to leave the company rather than break the rules.

A best practice for employers is to have a policy in place. This policy should, at minimum, forbid romantic relations between supervisors and subordinates since they have a greater likelihood for resulting in sexual harassment claims and are the most difficult to defend.  The “Cupid Contract” is another option for employers wanting to mitigate the risk of sexual harassment claims that stem from office romance.  A Consensual Relationship Agreement, the “Cupid Contract’s” legal name, is a document whereby coworkers declare in writing that they are engaged in a romantic relationship which is welcome and consensual.  The small flaw in this approach goes back to those cheating hearts, like Bill Clinton, who risk public humiliation if the relationship is not kept private.  Enticing these employees to not only disclose the relationship, but to put it in writing, creates a real challenge.

The biggest challenge employers face when deciding what type of policy to implement, or whether to implement one at all, is the realization that we are human first and professionals second. In the survey mentioned above, half of the individuals polled said they would engage in love at the office again, no matter what their employers say. Keeping this in mind, it is left to each employer to decide how best to handle the increasing presence of Cupid in the cubicles.

 

Mid-sized Businesses Get Another Reprieve from Obamacare

Once again, the Obama administration has announced a delay to the employer mandate portion of the Affordable Care Act (ACA). This time, mid-size businesses (those with 50 – 99 employees) will be getting a reprieve. The new health insurance requirements will not kick in for them until January of 2016, pushed back from January of 2015 (which was pushed back from January of 2014).

Larger businesses with more than 100 full-time employees will be allowed to phase in the health care coverage over the next two years. Under the newest revisions, these employers must cover 70 percent of their employees in 2015, followed by 95 percent in 2016 and beyond. Those who fail to do so will face stiff penalties.

Small businesses, those with less than 50 employees, remain exempt from the mandate.

No changes are being reported to the controversial standard for full-time employees. Under the provisions of the ACA, the definition of full-time employee remains at “30 hours or more per week”. Additionally, the White House will issue a separate set of rules in the coming weeks that will address employer’s requirements for reporting their workers’ insurance status to the government.

It’s “What’s Up? Wednesday”. Time to talk about DISCIPLINE POLICIES . . .

You asked:  “Our managers would prefer to leave discipline to their own discretion. Do we have to have a disciplinary policy spelled out in our employee handbook?”

Laura answers:

We appreciate your managers’ desire (and need) for case-by-case discretion when implementing discipline. Rest assured, leaving room for a manager’s discretion does not automatically rule out a well-defined policy. Progressive discipline policies, also called “Corrective Action Plans”, are great tools to help managers identify and correct deficiencies in behavior or performance. Any such policy should include a clear statement reserving management’s right to exercise discretion when applying any disciplinary action set forth in the policy.

 

That being said, we must add an important caveat. No matter how brilliant your policy, it will serve no good purpose if it isn’t applied consistently by well-trained supervisors/managers. If your disciplinary issues are not handled fairly and consistently across the organization, you may find the Equal Employment Opportunity Commission (EEOC) at your door. Leaving each manager to his or her own devices will invariably lead to inconsistent disciplinary actions, which open you up to claims of discrimination. Additionally, the lack of a defined disciplinary process and good documentation could be detrimental when contesting an Unemployment Compensation case in which the termination was for cause.

 

Many employers use a three or four-step progressive discipline policy that may include a verbal warning, a written warning, a one or two-day suspension, and termination. These actions may be applied in order or a manager may decide to bi-pass one or more steps, depending on the severity of the offense. Whatever steps are applied, each step should be documented and become part of the employee’s personnel file.

 

Here are some more tips to keep in mind when discussing disciplinary issues with employees:

 

• State the problem clearly followed by a clear explanation of the desired behavior.
•  Keep your side of the discussion short, to the point and be very specific. Do not use generalities to describe the undesirable performance. Talk about the problem, not the person.
•  Stick to recent events. Always respond quickly to undesired behavior or performance. Don’t let issues get stale.
• Offer a variety of solutions (encourage the employee to participate in this process).
•  Agree on the “next step” for this employee and set a date for a follow up meeting to review his/her progress, if appropriate.
•  Document your discussion! Always!! If it was a verbal, a simple notation in their file is enough. If it was a written warning or a more formal Performance Improvement Plan, get the employees signature on the documentation.

 

The best ways to insure consistent discipline practices is with a clearly defined policy and well-trained supervisors. If you need help crafting a disciplinary policy for your company, give us a call. We’d be happy to help.

 

If you have any other HR questions, send them to hrcounselorscorner@eastcoastrm.com. If you’d like email notification of all blog updates, just click the “subscribe” button to the right.

Disclaimer The information provided on this web site is for informational purposes only and not for the purpose of providing legal advice. Use of and access to this Web site do not create an attorney-client relationship between East Coast Risk Management or our employment attorney and the user or browser.

It’s Not Always a Party When You “BYOD”

By Renee Mielnicki, Esq.

Let’s face it.  We live in a technological world.  We are coming to rely on technology more and more every day in both our personal and professional lives.  Laptops, iPhones, iPads, Blackberries and other smart phones and tablets are everywhere.  Most companies are becoming more and more dependent upon modern technology to run their businesses.  Employees regularly use smart phones or blackberries to access their work emails, calendars and other company systems or networks.  In an effort to be more cost efficient and increase productivity, a majority of companies are allowing employees to “BYOD” or “Bring Your Own Device” to work.  BYOD is not only a catchy little phrase, but it’s a trend that is spreading fast in the business world.  Unfortunately, like any other good thing, it doesn’t come without potential pitfalls.

 While the idea may seem nothing but appealing, employers should consider a number of different issues before allowing employees to use their own devices.  The largest concern for employers is the ability of employees to steal trade secrets, reveal customer lists and expose proprietary information in a split second.  Our obsession with social media today coupled with our technology-savvy abilities allows employees to move this type of confidential information from the company system to the public eye with the press of a button. Beyond the loss of private information are potential wage and hour issues.

Employers wanting to follow the BYOD trend should first implement a written policy setting forth parameters around the use of personal devices.  An effective BYOD policy should address company ownership of data, confidentiality, employee privacy, the types of information that can be accessed or stored on the devices and required safety precautions, including password protection and risky applications.  These polices should also define which employees can use their own device as well as the types of devices that are permitted. 

A recent survey revealed that only one-third of companies following the BYOD trend have a written policy.  A carefully crafted policy can act as a deterrent as far as theft of trade secrets or misappropriation of private information.  Employers failing to implement a written policy may be wishing they had when they are forced to partake in costly litigation.  Of course, employers can always choose not to join the BYOD party if they believe the risks outweigh the rewards.

If you’d like help crafting a “BYOD” policy, give us a call at 724-864-8745.

It’s “What’s Up? Wednesday”. Time to talk about Reasonable Accommodations . . .

You asked:  “We have an employee who injured his back many years ago. His doctor has given him a prescription for a special desk chair, to make him more comfortable while at work. Are we [the employer] obligated to provide that chair?”

Laura answers:

Since this request for a new chair is clearly based on a medical condition (as the doctor’s prescription validates), this should be considered a request for a reasonable accommodation. Such a request falls under the Americans with Disabilities Act (ADA), a federal law that was passed in 1990 to protect people with disabilities from discrimination. Title I of the ADA requires employers to provide reasonable accommodations for employees and applicants with disabilities. The key word here is “reasonable”.

 

A reasonable accommodation is a modification to some aspect of the employee’s job (which may include work environment, tools, schedule, work practices, etc.) that will enable a qualified individual with a disability to perform their job or to enjoy equal benefits as any other employee without a disability. Reasonable accommodations must also be considered during the application process, to ensure that a qualified applicant with a disability has equal opportunity to attain the open position as any other qualified applicant without a disability.

If the chair he is requesting is the Cadillac of office chairs and will cost the company thousands of dollars, it may not be a reasonable accommodation based on the size of your company or your budgetary considerations. Such an expense could be considered an “undue hardship” on the company and would become unreasonable. If that is the case, and this chair is simply out of your reach, you are not obligated to provide that chair. However, you should engage in an informal dialogue with your employee to explore other options. Perhaps there is a more reasonably priced chair that would offer similar support or function. If other job modifications are feasible (such as scheduling options or changes to his work methods) that might alleviate the stress on his back, you should also discuss these options. Just make sure that your chosen accommodation is effective.

 

It is certainly in everyone’s best interest for you and your employee to find an affordable chair that satisfies his request or to agree on another effective accommodation. The sooner you act on such a request, by engaging the employee in the interactive process or by accomplishing the accommodation requested, the less likely you are to lose a valued employee or to violate the ADA.

 

If you have any HR questions, send them to hrcounselorscorner@eastcoastrm.com. If you’d like email notification of all blog updates, just click the follow button at the bottom of the window.

Disclaimer The information provided on this web site is for informational purposes only and not for the purpose of providing legal advice. Use of and access to this Web site do not create an attorney-client relationship between East Coast Risk Management or our employment attorney and the user or browser.

Balancing Talk around the Water Cooler with the NLRA

This is the first of a special two-part series featuring advice from our employment attorney, Renee Mielnicki, to help ALL employers — unionized and non-union — understand their obligations and rights under the National Labor Relations Act (NLRA). 

By Renee Mielnicki, Esq.

Most companies have at least one employee that I would call a “stirrer” or “instigator.”  They enjoy gossiping about anyone and everyone at work.  They make innuendos, negative comments and spread scandalous stories about others’ personal lives. Every conversation you have with that person leaves you with a bad impression of whomever they are speaking about.  Others in your workplace may also be doing the same thing, yet not to this degree.  Then, before you know it, you are working in a sea of backstabbing negativity that feels more like junior high than a professional place of business.  Even if gossip doesn’t reach to this level, most employers would agree that any amount of gossip in the office amongst co-workers has a negative effect on morale and productivity.  Co-workers talking negatively about other co-workers, whether it be about their personal or professional issues, often leads to high employee turnover.

In an effort to combat this problem, some employers have instituted a “No Gossip Policy” to stop the negative chatter at the water cooler. While it makes sense to proactively combat this  negative behavior, if these policies run afoul of the National Labor Relations Act (NLRA), there can be serious implications.

The NLRA is a federal labor law that protects the rights of both union and non-union employees who engage in “concerted activity.”  Simply put, the NLRA, which applies to almost all private employers, safeguards employees who act together to discuss their working conditions, such as their pay, hours, discipline issues, etc.   Under this law, employees have the right to make work-related complaints about their working conditions, including to their supervisor.  Any action taken by an employer to prohibit employees from engaging in these protected activities is illegal.

The National Labor Relations Board (NLRB) is a federal government agency that enforces the NLRA.  Its main focus recently has been whether the policy is so overly broad that it could be interpreted as restricting the exercise of rights that the NLRA guarantees.  For instance, in Alurus Technical Institute v. Joslyn Henderson, the following “no gossip” policy was struck down:

“Employees that participate in or instigate gossip about the company, an employee, or customer will receive disciplinary action. “Gossip” includes, among other things, talking about a person’s personal life when they are not present, talking about a person’s professional life without his/her supervisor present, and negative, or untrue, or disparaging comments or criticisms of another person or persons.”

In this particular case, this policy was cited as one of the reasons for the employee’s termination of employment.  The Administrative Law Judge found that this policy was so broad that it prohibited employees from speaking to co-workers about discipline and other terms and conditions of employment.  Since the employee had been terminated, the employer was ordered to reinstate her to her job with back pay.  It was also ordered to cease and desist the policy.

This case highlights the worst case scenario for violating the NLRA.  If an employee files a complaint with the NLRB, he or she cannot seek reinstatement or back wages unless the employee has been terminated.  Absent termination, the NLBR can simply strike the policy down.  In addition, the NLRA does not provide for penalties.  It only provides for the “make whole” remedies mentioned above.  However, the risks of having this type of policy, and then terminating an employee because of it, are not worth it due to the financial implications of the potential back pay and administrative time that would be spent fighting the NLRB.

When drafting a “No Gossip” Policy, employers must be specific about the type of gossip that they are prohibiting to avoid encroaching on protected activity. Unfortunately, little guidance has been issued with regard to these types of policies.  But, this doesn’t mean that employers have to feel like office gossip is the unavoidable evil or that it’s the only thing working overtime at the office.  Rather, focus on specifics to give employees clear notice of the types of negative comments forbidden and stay away from broad language or any restriction on the right to discuss or complain about working conditions.

If you question whether your Gossip Policy is legal or need help writing a policy on this matter, please contact us.

Tis’ the Season for Holiday Lawsuits

by Renee Mielnicki, Esq.

It’s that time of the year again!  Most employers want to sponsor holiday parties for their employees to celebrate the season and reward employees for their hard work during the year. Before throwing that annual Christmas bash, employers should understand their legal exposures in these types of situations.

Sexual harassment continues to be one of the most frequently filed discrimination lawsuits.  Claims are on the rise as the result of conduct that occurs at employer sponsored holiday parties.  Employees may be feeling especially merry at these parties because they may have had one too many cups of holiday cheer.  In addition, their inhibitions may be much more relaxed than they would normally be in the office. 

Conduct of a sexual nature, whether by words or action, must be severe or pervasive to be actionable.  Usually, one incident, alone, at a holiday party cannot give rise to a sexual harassment lawsuit.  But, if coupled with other similar conduct in the workplace, that one comment can lead to expensive litigation for an employer.  Take for example a co-worker at the holiday party who makes a sexual comment to a co-employee.  While not actionable by itself, if other factors exist in the workplace that create a hostile work environment, that comment can become part of his or her lawsuit. 

However, some situations at a holiday party that are a one-time incident can give rise to a sexual harassment claim.  Conduct that is serious in nature, such as a sexual assault, or an offensive touching, could impose liability, especially if the accused is a supervisor since employers have strict liability for their discriminatory or  harassing conduct. 

Another holiday activity that poses a legal risk in the workplace is the exchange of holiday gifts, whether in the office or at a holiday party.  Employees who think holiday cards containing adult content or naughty gifts are humorous may not find it so funny to know that they can create a hostile work environment for those who do not find is so comical. 

Religious discrimination is another potential liability for employers wanting to throw a Christmas party.  While Christianity remains the majority religion in the United States and most celebrate Christmas, failing to keep it secular could give rise to these types of claims.  Many minorities do not celebrate Christmas or their religion may forbid them from participating in certain types of celebrations. 

In order to avoid these types of risks during the holidays, employers should consider the following 10 tips:

1.    Consider having a lunch or breakfast gathering to celebrate the holidays where no alcohol will  be served;

2.   If you do have a party after work hours, invite employee spouses to reduce the risk to “indulge”;

3.   Limit the number of alcohol drinks that can be served;

4.   Designate a few employees in management to remain sober and to be on the watch for inappropriate behavior;

5.  Redistribute your sexual harassment policy prior to the party and emphasize to employees that it applies at all social events and the holiday party;

6.  Consider implementing a social event/holiday party sexual harassment policy in supplement to your already existing sexual harassment policy;

7.  Make attendance voluntary since not all people celebrate the holidays. Moreover, mandatory attendance can lead to wage and hour issues;

8.   Make sure no employer references are made to the workplace at the party.  For instance, no awards or recognitions;

9.   Keep the theme secular. Rename it the “Holiday Party” as opposed to the “Christmas Party” to be inclusive and secular;

10.  Instead of a Christmas or holiday gift exchange, encourage employees to participate in a cookie exchange.

Following these 10 tips during the holiday season can help keep the season festive without creating legal landmines that are expensive. 

Costs of Misclassifying Employees as Independent Contractors Continue to Rise as the IRS Cracks Down

by Renee Mielnicki, Esq.

An area of growing concern for employers is the misclassification of an employee as an independent contractor.  According to Internal Revenue Service (IRS) estimates, millions of workers are currently misclassified as independent contractors.  Misclassification allows employers to escape paying social security, medicare, unemployment and payroll taxes.  The IRS estimates that some employers save approximately $43,007 per year in taxes by misclassifying employees. Since the employer’s gain is the government’s loss, the IRS recently partnered with the Department of Labor (DOL) to share employment misclassification information. They set a goal of investigating 6,000 employers to increase tax revenue.  With a struggling economy and the government constantly on the brink of default, it’s no wonder this issue is a focus.

Another reason for targeting misclassification may be that employers with at least 50 employees will soon have to offer affordable health care under the Affordable Health Care Act or face penalties.  While misclassification may be even more tempting for employers in light of these new, costly requirements, the price if they get caught may not be worth it.

The tax and employee benefit savings may make it appealing for an employer to misclassify an employee as an independent contractor.  However, as scrutiny continues to rise, so do the consequences.  Currently, if you are audited by the IRS and found to have misclassified an employee, you will be forced to pay back taxes, with interest, and a penalty.  In addition, beginning in 2015, if a large employer (50 or more employees) fails to provide the minimum required level of affordable health care to an employee, an additional penalty of $2,000 per employee may apply.  Therefore, misclassification just got even more expensive for some employers beginning in 2015.

Additionally, Congress is now focusing on this issue.  Senator Bob Casey (D-PA) announced on November 12, 2013 that he recently introduced the “Payroll Fraud Prevention Act of 2013” bill at a hearing before the Senate Subcommittee on Employee and Workplace Safety.  If passed, the bill would make misclassification a federal labor offense and would impose additional monetary penalties.  Of bigger interest, the bill has a notice requirement that would obligate employers to inform both employees and independent contractors as to whether they have been classified as an “employee” or a “non-employee.”  If this bill passes, it would add one more dangerous repercussion in the misclassification arena.  Failure to simply provide the notice would result in a civil penalty of $1,100 for a first offense, and up to $5,000 for a second offense.  This is on top of the additional penalties that the bill would impose.

Employers are left to decide whether or not it’s worth it to misclassify an employee given all of these consequences.  Even if misclassification is unintentional, the penalties remain the same.  If an employer gets audited by the IRS, audits usually date back at least three years.  Some estimate that if an employer gets hit in an audit for misclassification, the penalty may be as much as 40% of the Form 1099 gross amount.  For small business owners, this may force them to close their doors. The best practice is then to first determine proper classification as an employee or an independent contractor.  The IRS considers three factors to help employers make this determination.  They are:

1. Behavioral.  Does the employer control, or have the right to control, what the worker does and how the worker completes his/her job?
2. Financial.  Does the employer control the business aspects of the worker’s job?  For example, is the worker paid a salary?  Does the employer reimburse for expenses?  Does the employer provide the tools required for job completion?
3. Type of Relationship.  Does the worker receive employee-type benefits?  Will the relationship continue after the work is finished?  Is the work a key aspect of the employer’s business?

While the IRS acknowledges that this is a complex issue, if the answer to most of these questions above is yes, chances are, the worker is an employee and not an independent contractor.

Employers who believe that they have misclassified workers as independent contractors may be able to correct the issue at a price much lower than a costly audit.  In 2011, the IRS announced its Voluntary Classification Settlement Program (VSCP) which allows certain employers to correctly reclassify independent contractors as employees.  In exchange for voluntarily reclassification of a worker as an employee, the employer pays a penalty of only 10% of the employer’s tax liability and will not be liable for any interest or penalties.   However, the employer has to agree to treat the worker as an employee in the future and pay the proper taxes.

In order to qualify for the program, the employer must pass three tests: (1) the employer must have consistently treated the worker an independent contractor; (2) the employer must have filed all required Form 1099s for the preceding calendar year; and (3) the employer must not currently be under audit by the IRS, DOL or any state government agency.

Before deciding to voluntary enter the VCSP program, employers should be aware of its potential downfalls.  Misclassification could expose the employer to wage and hour violation claims by a worker now classified as an employee which could impose further liabilities for benefit or compensation claims.  This is especially true in light of the IRS’s new partnership with the DOL to share misclassification information.

Then what should an employer do?  Employers should first analyze whether their current classifications are correct.  If they are not, before applying for the VSCP, the employer should weigh the potential costs of entering into the VCSP and the potential for exposure to other liabilities in litigation as compared to the costs of continued non-compliance and the potential of a future IRS audit.