Are Your Nonprofit's Workers Employees Or Independent Contractors?

Many nonprofit employers use independent contractors to supplement their regular workforces.  In general, there’s nothing wrong with that but it is critical that nonprofit organizations (NPOs) properly distinguish between employees and independent contractors.  Federal and state governments are increasing their efforts to identify and correct independent contractor misclassifications. Government agencies are more aggressive in investigating claims of misclassification and prosecuting offending employers, including NPOs.  The consequences for violations can be significant. 

What’s the Potential Liability?

Nonprofits that misclassify workers as independent contractors may be subject to significant federal, state and local tax liabilities (plus interest and penalties).  NPOs may face additional reporting and withholding obligations and potential liability for back wages, overtime pay, and unpaid unemployment benefits.  While the penalties are steep and designed to encourage compliance from all employers, the effect on tax-exempt status, public relations and therefore the ability to raise funds is of particular importance to NPOs.  

IRS and DOL are Watching

The Internal Revenue Service (IRS) is currently in the middle of a three-year audit initiative targeting 6,000 randomly selected employers, including NPOs.  One area of focus for the IRS examiners is the classification of workers as independent contractors.  In addition to worker classification issues, the IRS will focus on reimbursed expenses, executive compensation, and backup withholding.

The Department of Labor (DOL) is also increasing its focus on worker misclassification.  The DOL will continue to increase enforcement activity and has dedicated significant resources to focus on worker misclassification and the recovery of related unpaid taxes.

Bottom Line

In order to minimize liability, employers that use independent contractors should perform an audit of its workforce classification process to ensure compliance with applicable federal and state laws. 

If you're facing this issue or have questions about employee classification,  contact me or visit my website.   

The ADA and Leave Policies - Don't Get Burned!!

The Equal Employment Opportunity Commission (EEOC) reported that Interstate Distributor Company, a trucking firm, agreed to pay $4.85 million to settle a lawsuit alleging pattern and practice violations of the Americans with Disabilities Act (ADA).  Read the EEOC’s press release here.  According to Interstate’s policy, if an employee, after exhausting 12 weeks of leave needed additional leave time Interstate automatically terminated them rather than determining if it would be reasonable to provide additional leave as an accommodation.  Under this policy, if an employee had restrictions, Interstate refused to allow them to return to work and failed to determine if there were reasonable accommodations that would allow the employee to return to work with restrictions. Interstate’s leave policy stated that employees on leave were automatically terminated after exhausting 12 weeks of leave unless they were able to return to full-duty work without limitation.  

This is a pretty straight forward policy – easy to administer; no discretion, objective on its face.  So, what’s the problem?

The EEOC charged that Interstate violated federal law by refusing to make exceptions to this "no restrictions" policy.  That’s the problem.  The EEOC holds the position that employers must make an individualized determination for each employee that has exhausted a leave of absence as to whether the employee can return to work with or without reasonable accommodation for a disability. The EEOC has been successfully pursuing this legal theory in court.  Enforcement of ADA claims remains a high priority for the EEOC and systematic violations, i.e., widespread or pursuant to employer’s policy or practice, are of special interest. 

Bottom Line  Employers would be wise to have their employee handbooks, policies and procedures reviewed and updated regularly to confirm that they are in compliance with the law.  Employers should have attendance policies and practices that address how reasonable accommodations will be provided – acknowledging that for paid or unpaid leave might be a reasonable accommodation for employees with disabilities.  Employers should also routinely provide EEO training for their managers and human resources personnel to insure that understanding and appropriate implementation of policies and procedures.  

Please contact the law office of Joycelyn McGeachy-Kuls if you're facing this issue or have any questions or visit our website at jmkuls.com for more information.