Category: Workforce Compliance Trends

For many organizations, managing unemployment claims can be a challenging and costly process, particularly when dealing with specific categories of workers like retirees, temporarily terminated employees, and 1099 independent contractors. Misclassification or improper documentation for these groups can lead to unnecessary unemployment claims expenses. By outsourcing the “employee of record” function to a third-party payroll provider, businesses can minimize these claims, reduce administrative burdens, and gain more control over unemployment-related costs. Here’s how this strategic partnership benefits organizations:

1. Clear Employment Boundaries for Temporary Layoffs and Recalls

When employees are temporarily terminated and later recalled, there can be confusion around their eligibility for unemployment benefits. Third-party payroll providers, acting as the new employee of record, handle these employment transitions with precision. By on-boarding recalled employees and becoming the employer of record, this minimizes the likelihood of unemployment claims from recalled employees. The burden has been passed on to the provider.

2. Accurate Classification and Documentation for Retirees

Handling retirement transitions is another area where mistakes can lead to avoidable unemployment claims. Bring back a retiree without the full time status commitment and payroll burden. Third-party payroll providers, acting as the new employee of record, can also reduce the unemployment burden by handling these employment transitions.

3. Ensuring Compliance with Unemployment Regulations through 1099-to-W-2 Conversions

Misclassifying 1099 independent contractors as employees can lead to significant compliance issues, including unexpected unemployment claims. Third-party payroll providers help ensure that workers who should be classified as employees are converted from 1099 to W-2 status, bringing businesses into compliance with unemployment and tax regulations. This conversion provides clarity around eligibility, as W-2 employees are entitled to unemployment benefits if they meet the necessary criteria, whereas properly classified 1099 contractors are not. By proactively managing these employee conversions, third-party payroll providers help organizations avoid potential fines, penalties, and costly claims due to misclassification, while maintaining full compliance with state and federal employment laws.

4. Comprehensive Record-Keeping for Contractors, Retirees, and Temporarily Laid-Off Employees

Maintaining thorough documentation is crucial for contesting unemployment claims, particularly for retirees, contractors, and employees in temporary or flexible roles. Third-party payroll providers manage accurate and consistent records, from classification documents to proof of temporary status. These records are invaluable for contesting ineligible claims, ensuring an organization only pays what is necessary.

5. Reduced Claims and Administrative Burden on HR Teams

When handling unemployment claims for retirees, recalled employees, or 1099 contractors, the administrative workload can be substantial. Things get even more complicated when handling multi-state payroll. A third-party payroll provider can alleviate this burden, freeing up an HR team to focus on strategic initiatives rather than navigating the claims process. By reducing HR’s administrative tasks, payroll providers help streamline operations and minimize errors that could lead to unnecessary claims.

6. Predictable Costs and Better Control Over Unemployment Expenses

Third-Party Payroll providers can become the employer of record for either a specific job title classification or workforce by as specific Work State. By reducing the number of unemployment claims and ensuring accurate classification and documentation, third-party payroll providers give better control over potential unemployment expenses, making State Unemployment Insurance (SUI) financial planning more consistent.

Conclusion

Outsourcing the employee of record function to a third-party payroll provider can help an organization reduce unemployment claims related to retirees, recalled employees, and 1099 contractors. With their expertise in documentation, classification, and compliance, payroll providers can ensure that only eligible workers receive unemployment benefits, ultimately protecting businesses from unnecessary expenses. Partnering with a payroll provider allows cost management more effectively and focus on core business goals.

As the 2024 election approaches, many small and midsized businesses are delaying hiring due to uncertainty over possible new presidential policies affecting the business sector, such as changes in tax laws, healthcare regulations, and labor policies. Combined with economic uncertainty, high interest rates, and tight budgets, companies are understandably cautious about increasing staff and headcount in an unpredictable environment. But what if there was a way to maintain operational efficiency through hiring without the long-term commitment of adding permanent employees?

This is where third-party payroll solutions can be a game-changer. By partnering with a staffing firm or employment agency that provides third-party payroll solutions, businesses can still access top-quality talent while keeping headcount low and budgets under control.

Recruit the talent and let the staffing firm handle the payroll.

Third-party payroll Solutions offer businesses the flexibility to recruit and bring on skilled employees without officially adding them to headcount as an actual W-2 employee. The client sources and recruits the talent, while the staffing official hires those referred employees as a W-2. The staffing firm charges a low markup percentage over the hourly employee gross pay rate designated by the client. Here’s how it can benefit a business in a challenging uncertain economy:

1. Keep Headcount Low, Maintain Productivity: With third-party payroll, the employees technically work for the staffing firm, allowing a company to manage headcount and minimize the impact on payroll. Since many CFOs analyze headcount on a monthly basis, this helps maintain essential operations without the long-term financial commitment of permanent full time hires.
2. Access Skilled Talent Now, Hire When Ready: Even though hiring is on hold for many companies, there’s no reason to miss out on top-tier skilled candidates. With third-party payroll, clients can bring on qualified employees to help operations grow now, and when the economy stabilizes or budget allows, seamlessly transition them into full-time employees. The good news is that there are no conversion fees to convert these employees back to the client’s W-2 payroll.
3. Minimize Administrative Burden: The administrative tasks involved in managing payroll, taxes, and compliance can be overwhelming, especially when budgets are tight and teams are lean. Third-party payroll solutions handles all payroll taxes and compliance, allowing HR and the internal management team to focus on core business operations. A staffing firm can offer paid sick leave, ACA complaint health benefits, and 401(k) retirement plans (with a safe harbor employer match) to eligible employees.

The Benefits of Third-Party Payroll Solutions During Economic Uncertainty:

• Cost Control: Recruit skilled workers without the full financial commitment of adding them to W-2 payroll right away.
• Flexibility: Scale workforce up or down as needed, based on the business situation, without worrying about layoffs or compliance headaches. There are also no unemployment claims expenses or management. The third party payroll solutions provider handles the employee off-boarding & compliance.
• Reduced Risk: In uncertain times, third-party payroll solutions mitigates the risks associated with full-time hiring, offering flexibility without sacrificing talent.

Conclusion: Stay Agile with Third-Party Payroll Solutions in an Uncertain Economy

When there is economic uncertainty as well as an upcoming election, some businesses put their hiring needs on hold. This is not necessarily the optimal solution for a company with enterprise wide growth plans that include hiring employees. But with third-party payroll solutions, a company can maintain operations running smoothly while preparing for growth when the time is right. This managed solution gives companies access to qualified talented employees now, with the flexibility to bring them on full-time once the headcount or budget increases.

Since 1951, the state of New Jersey has required that any employment agency, headhunter, consulting firm or home health agency operating as a business in the state register with the Division of Consumer Affairs. Over the years, the state has not actively enforced compliance or registration to the thousands of firms that conduct operations in New Jersey. Not until the New Jersey Temporary Worker Bill of Rights was enacted in late 2023, has the state fully ramped up its audit of staffing firms and mandated the enforcement of employer registration.

According to the Division of Consumer Affairs, “any person who operates a business that employs individuals directly or indirectly for the purpose of assigning the employed individual to assist the firm’s customers in handling work loads” is required to register as a licensed temporary help service firm. In doing so, the state is monitoring New Jersey temporary employment agency unfair trade practices.

A company, hospital, or medical practice that works with an employment agency should verify that its temporary help employment agency vendor or partner is registered with the state. A client that works with only a registered staffing firm has a measure of protection and compliance. The state requires employment agency compliance with regards to insurance, financial charters/ownership, as well as legal documentation. It also monitors company complaints and violations.

Any company can verify if a temporary help employment agency is registered with the state of New Jersey by clicking on the New Jersey Division of Consumer Affairs Search Tool.

Temporary employment agencies that fail to register and comply with the state face the following potential violations and penalties.

• Being requried to refund payments made from clients
• Being required to pay reasonalbe attoreney fees for any ligitaion
• Being required to pay a $2,000 penalty for the intiail violation and a $5,000 penalty for every subseuqent fiolation
• The revocation of a New Jersey corporate charter

Since people are the most important asset to any organization, it’s important to partner with a stable and licensed employment agency that provides its own employees according to state guidelines. Why risk working with a temporary employment agency where its greatest assets can be taken away?

A law signed earlier this year to protect temporary workers in New Jersey has fully taken effect on August 5th, 2023.

The legislation, known as the Temporary Workers’ Bill of Rights, expands the rights and protections to only very specific labor categories of temporary workers – allowing for greater oversight of temporary help service firms and third-party clients by the New Jersey Department of Labor and Workforce Development  and the Division of Consumer Affairs. It was enacted by Gov. Phil Murphy in February.

Some examples of those labor categories include:

• Food preparation
• Construction
• Protective Services / Security

Some provisions of this law were effective May 7, 2023, while other provisions including record keeping and transportation were effective on August 5, 2023. The notice of rule proposal has been published on the NJ Department of Labor & Workforce Development.

Bringing on summer interns is a great way for an organization to get help and mentor a student with a passion for the industry. It may also let managers take that much needed vacation. One consideration that companies don’t realize is that summer interns need to be paid a fair hourly wage according to federal and state payroll tax guidelines. Basically, interns must be treated as employees and added to a company’s full time staff payroll. You can’t get something for nothing.

Even when organizations realize that they have to pay to play, they still hesitate to use summer interns because they must now officially hire the employee and add to staff payroll. This reality can frustrate the CFO and Human Resources department due to the fact that summer interns who are directly employed will add to the overall company’s headcount. The employment of interns can also complicate monthly full time employee (FTE) census reports. The impact could cost throw off discrimination testing for retirement plans, add additional payroll processing costs, and simply just increase employee risks and exposure with regards to workers compensation insurance premiums.

A popular strategy to remove the employer and employee relationship is to refer the summer interns to an employment agency that specializes in third party payroll solutions. With this practice, the summer interns can still be on boarded, but they become the employee of the employment agency. The employee or intern is simply transferred to the employment agency and the agency takes on the official employer of record. The employment agency will also become the W-2 employer and deduct state and federal taxes as well as insure the employee (workers compensation and professional liability).

A responsible third party payroll solutions firm is aware of the compliance issues, co-employment loopholes, workers compensation insurance risks, and payroll laws. When selecting a third party payroll solutions partner, select a provider that is financially solvent. After all, the employment agency is extending payroll on your company’s behalf. They are required to pay the employee on a weekly payroll cycle no matter what happens. Also, inquire about the employment agency’s employee benefits offerings. Health benefits and 401(k) retirement plans will increase summer intern retention if applicable. Some employment agencies offer a 401(k) employer match. A great way to retain interns.

Overall, summer interns are a great way to maintain succession planning and office productivity. An easy way to get the payroll process going smoothly and quickly is to partner with an employment agency that specializes in third party payroll solutions. Why not let your trusted payroll specialist and advisor handle the compliance?

As an employment agency, our goal is to consult with companies to discuss how we can solve their human resources challenges in order to become a partner in their strategic staffing plan. Through these conversations, we sometimes discover that these potential clients currently utilize 1099 Independent Contractors incorrectly. They are technically misclassifying the status of the 1099 Independent Contractor.

1099s are self employed individuals who do not work for any company as an official employee. They do not report W-2 earnings, they are not listed on any company’s official payroll, and they are responsible for filing their own taxes. Unfortunately, in several cases, companies unknowingly retain workers as 1099s for almost any job title (e.g. customer service, receptionist, sales rep, office manager).

Companies that utilize 1099s are responsible for the compliance and controls. 1099 compliance refers to the process of following the Internal Revenue Service (IRS) regulations for reporting payments made to independent contractors or freelancers.

Businesses are required to issue 1099 forms to independent contractors and vendors if they paid them more than $600 in a tax year. The 1099 form details the amount paid to the contractor or vendor and is also reported to the IRS.

Failure to comply with 1099 regulations can result in penalties and fines from the IRS. Therefore, it’s important for businesses to understand the requirements and ensure they are accurately reporting all payments made to independent contractors and vendors.

To ensure 1099 misclassification compliance, businesses should keep detailed records of all payments made to independent contractors and vendors throughout the year, and issue 1099 forms to those who meet the payment threshold by the end of January of the following year. Additionally, businesses should keep copies of all 1099 forms issued and file them with the IRS by the appropriate deadlines.

If a worker is misclassified as an independent contractor when they should have been classified as an employee, there can be penalties for both the employer and the worker. Here are some of the penalties that could apply:

For Business / Employers:

• Fines: Employers can be fined for misclassifying workers. The amount of the fine varies depending on the severity of the violation, but can be up to $1,000 per misclassified worker for a first offense and up to $5,000 per worker for repeat offenders.
• Back Taxes: Employers can be required to pay back taxes and penalties for failing to withhold income taxes, Social Security, and Medicare from the worker’s paychecks that should have been W-2 employees.
• Legal Costs: Employers may also face legal costs if the misclassified worker takes legal action against them.

For Workers / Employees:

• Loss of Benefits: Misclassified workers may not be eligible for benefits that are available to employees, such as health insurance, retirement benefits, and workers’ compensation.
• Unpaid Taxes: If the employer did not withhold income taxes, Social Security, and Medicare from the worker’s paychecks, the worker may be required to pay these taxes themselves.

In addition to these penalties, 1099 Independent Contractor misclassification can also have other negative consequences for both the employer and the worker, such as damaging the employer’s reputation and harming the worker’s ability to obtain future employment. It’s important for employers to properly classify their workers to avoid these penalties and protect their workers’ rights.

A remedy to the 1099 misclassification problem is to legally classify the worker as a W-2 employee. When that happens, the employer-employee relationship has been documented and taxes and wages are reported to both the state and federal revenue agencies.

Companies can simply convert the 1099 to an employee or use a third party payroll solution. In either case, the 1099 misclassification and potential penalties have been eliminated.

Effective Jan 1, 2023, employees working in the state of New Jersey will see some positive changes with regards to higher pay and lower payroll deductions such as no temporary disability insurance.

At the beginning of this year, the statewide minimum wage increased by $1.13 to $14.13 per hour for most employees.

The increase is part of legislation signed by Governor Murphy in 2019 that raises the minimum wage to $15 per hour by 2024 for most employees. In 2018, the state’s minimum wage was $8.60 per hour. Under a law signed in 2019, the minimum wage increases by $1 per hour each year because of significant increases in the Consumer Price Index (CPI).

The New Jersey Department of Labor and Workforce Development (NJDOL) sets the minimum wage for the coming year using the rate specified in the law or a calculation based on the CPI, whichever is higher. Once the minimum wage reaches $15 per hour, the State Constitution specifies that it continue to increase annually based on any increase in the CPI.

Agricultural employees are guided by a separate minimum wage timetable and were given until 2027 to reach the $15/hour minimum wage. Employees who work on a farm for an hourly will see their minimum hourly wage increase to $12.01, up from $11.05.

Additionally, to qualify for Unemployment, Temporary Disability, or Family Leave benefits in 2023, an applicant must earn at least $260 per week for 20 base weeks, or alternatively, earn at least $13,000.

The NJDOL announced a reduction in employee contribution rates for 2023, with Temporary Disability dropping to zero percent, from .14 percent, and Family Leave decreasing by more than half, to .06 percent, from .14 percent. In practical terms, employees who work in the state of New Jersey will save an average of $56.25 in Temporary Disability contributions and $55.25 in Family Leave contributions in 2023. 

It’s going to be an arctic blast holiday, but that won’t scare away Santa and those potential holiday office celebrations. Let the games continue, but Human Resources departments should check with their employment agencies on best practices when it comes to inviting the temporary (temp) employees to the party.

The answer can be confusing, but the important factor is the messaging or branding behind the purpose of the company holiday party. The issue that HR managers contemplate is the concept of “co-employment.”  Co-employment is defined as “a relationship between two or more employers in which each has actual or potential legal rights and duties with respect to the same employee.” 

So who is the employer?  Temps or Contract/Contingent employees are employees of the temp agency, employment agency, or staffing firm (we all like to have different company nicknames). Temps are not classified as employees of the company who is hiring the temp on assignment.

Many companies and healthcare organizations now rely on temporary employees or contractors. As the scope of a project grows, the temporary employee stays longer than originally intended and begins to assimilate into the office culture. Temps attend company functions and, in some cases, travel on behalf of the client. 

Original staffing augmentation assignments can get extended several times. After some time, the distinction between the temp and the full-time in-house employee is blurred.  Before one realizes, a “temp” has been with the company on assignment longer than most employees.

In summary, the best practice for a company that wishes to open its holiday party to both internal employees and temps is to brand its holiday party as a “Company holiday party.”  HR managers should try to refrain from using the phrase “employee holiday party” in messaging.  Companies can also invite vendors, suppliers, and family members to further make the distinction.  Keep the internal and external communications consistent across all channels.  Another good strategy is to inform the temp agency of the holiday party so they can also have the opportunity to invite their full-time employees to the holiday party.

When it comes to gifts, it depends on the gift. Any gift with cash value may have to be declared as W-2 compensation. It’s always best practice for HR managers to check with their payroll and accounting departments when it comes to offering gifts to temps and full-time employees. Either way one goes, the holiday spirit is on. Enjoy!

There are very clear differences in the official working relationship and financial responsibilities between employers, employees, and 1099 independent contractors.

W2 vs. 1099 refers to the difference in official IRS tax forms. Employees receive W-2 forms from their employer and independent contractors are required to fill out the 1099 form. According to taxing authorities, whether or not the working relationship is consistent with how each type of worker is classified dictates compliance. W-2 employees have payroll taxes deducted by their employer, who pays the government on the employee’s behalf. 1099 Independent Contractors are responsible for their own payroll taxes and expected to submit their own payments to the government.

Sometimes companies (employers) utilize or retain 1099 Independent Contractors, but don’t realize or officially comply with the IRS guidelines of the worker classification. In the recent case of Uber and the state of New Jersey, Uber, the enormous ride sharing company, agreed to pay the state of New Jersey $100 million in back taxes after the state said the company had misclassified its huge number of drivers as 1099 independent contractors.

An audit by New Jersey’s Department of Labor and Workforce Development found that Uber owed four years of back taxes because they had classified drivers in the state as 1099s rather than W-2 legal employees. In summary, Uber was directly managing these workers (sometimes exclusively) and consequently required to pay these drivers as W-2 employees. That reclassification would provide mandatory employee and employer payroll taxes to the state of New Jersey.

UNIFORCE Staffing Solutions offers 1099 Independent Contractor worker compliance through its third party payroll solutions. Companies that are concerned with failing the 1099 Independent Contractor test can rely on UNIFORCE to legally classify those workers as W-2 employees in multiple states.

Additionally, for more information on the Uber case with the state of New Jersey, read the full story from the New York Times.