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1099 Misclassification Reported by Uber in the State of New Jersey

Posted on Sep 23, 2022

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.

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Compliance is the key to a Staffing Temp Agency

Posted on Aug 03, 2022

Staffing Agencies have become an integral partner in the overall hiring process for most organizations. Talent Acquisition departments at these companies utilize staffing or temp agencies to supplement or augment their full time workforce for a variety of strategic objectives. When partnering with a temp agency, it is highly advantageous to select a staffing temp agency vendor that implements strong workforce compliance in the areas of employee on-boarding, payroll processing procedures, insurance requirements, and pre-employment background checks.

When a staffing agency hires an employee for a temp or contract assignment, that temp agency must adhere to the same policies and procedures as any direct employer. A temp agency should manage worker compliance by following all state and federal employment laws and policies such as the Fair Labor Standards Act (FLSA) or paid sick leave laws such as those in New Jersey and California. Temp agencies must also comply with state employment discrimination laws. For example, an employment application cannot ask questions pertaining to a previous rate of pay or an admission of previous criminal convictions.

Additionally, staffing agencies must comply with all federal I-9 form procedures implemented by the Department of Homeland Security. The purpose of the I-9 form is to verify the identity and employment authorization of individuals hired for employment in the United States.  An employer or temp agency is required to inspect acceptable documents that validate employment authorization furnished by the employee. A temp agency that values full compliance should consider utilizing the E-Verify database, a division of the Department of Homeland Security, to verify work authorization. When using E-Verify, an employer is required to submit an employee record DHS verification within three days of the employee start date.

In order to complete the I-9 form accurately, an employer must, physically in person, verify those acceptable documents presented by the employee. Since the pandemic, the DHS has been somewhat flexible in the employer examination and certification of those documents. At times, they accept I-9 Notary forms where a licensed notary validates those acceptable documents. Some temp agencies, such as UNIFORCE Staffing Solutions, utilize a web-based electronic on boarding system that handle the processing of I-9 acceptable document verification remotely. Candidates can take photos of their acceptable documents (IDs) and upload them directly through the tool with a mobile phone. At the same time, a friend or family member can verify the I-9 documents in person. IP Addresses of both parties get recorded with the I-9 to comply with I-9 verification guidelines.

A temp agency that is licensed and operating as an employer in multiple states needs to manage payroll compliance with regards to state and federal employment laws. Some states like New Jersey, New York, and California require Paid Sick Leave Pay. These same 3 states also require mandatory state disability insurance paid by the employee or employer. Since the pandemic, California also requires COVID Sick Leave Pay. Many states require different minimum hourly wage pay rates. Additionally, some states like Utah require payment of the last paycheck immediately after the temp assignment ends. Also, some states like Arizona require the use of the E-Verify system.

Employer Insurance coverage is also a key element to a staffing agency’s compliance strategy. A temp agency should obtain the necessary commercial insurance policies to manage its own internal risk while protecting its clients by clearly and legally separating the lines of co-employment as well as the employer-employee relationship. Staffing agencies should consider obtaining:

  • General Liability Insurance
  • Professional Liability Insurance
  • Umbrella Liability Insurance
  • Workers Compensation Insurance
  • Crime Insurance
  • Cyber Liability Insurance
  • EPLI Insurance
  • Commercial Automobile Liability Insurance

A temp agency should also be able to provide its clients with an official Certificate of Insurance (COI) as evidence of insurance coverage.

Many temp agency healthcare clients, as part of their own compliance efforts, require pre-employment and occupational medicine testing for licensed medical professionals. In this case, the temp agency is required to run the following background checks in order to hire an employee to work on assignment at a hospital or medical office practice. Such background checks include:

  • 7 year criminal background check
  • 10 panel drug test
  • OIG Sanction Search
  • Education Verification
  • Proof of an annual TB test
  • Proof of Titers / Immunization
  • Proof of MMR Vaccination
  • Proof of COVID Vaccination
  • Proof of an Annual Physical Examination from a Physician
  • Education verification
  • Employee references

Some staffing agencies value compliance so much that they have their own internal compliance department to manage all these back office procedures. It’s also a good idea for a temp agency to obtain an electronic web-based on boarding software to digitally store employment applications and background check test results. A temp agency never knows when an audit can be requested by the DHS, a client, or insurance provider.

In summary, any reputable temp agency should operate its own internal risk management policy and maintain a clear and communicative direct relationship with its employees. The idea behind a strong compliance strategy is to protect the staffing relationship between the temp agency and the client while complying with all state and federal employee and payroll laws.

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New Jersey Minimum Wage increases in 2022

Posted on Dec 23, 2021

The minimum wage for employees who work in the state of New Jersey is set to increase to $13 per hour starting next year, Jan. 1, 2022. The minimum wage will also increase to $15 per hour by 2024.

The current nationwide minimum wage has been $7.25 per hour since 2009.

New Jersey Governor Phil Murphy campaigned in 2017 on increasing the state’s minimum wage to $15 an hour when it was just $8.60 an hour, as national momentum for the uptick picked up.

Under the wage increase that Murphy signed in 2019, over a year before the onset of the pandemic, the increases are incrementally phased in, so as to allow employers more time to adapt to the added costs.

Refer to the New Jersey Department of Labor and Workforce Development Statutory Minimum Wage Notice.

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New Employee Payroll Changes for Social Security next year

Posted on Oct 15, 2021

Next year, in 2022, the federal government is encouraging retirement savings through increase Social Security payroll tax contributions. The good news will be an increase in Social Security earnings upon retirement. The bad news may be less net wages or dollars in your paycheck.

Seniors and other Americans receiving Social Security benefits in 2022 will see the largest increase in their payments in four decades, reflecting surging inflation during the pandemic.

Next year’s cost-of-living adjustment, or COLA, will be 5.9%, the Social Security Administration said Wednesday. The increase will translate to an addition of $92 to retirees’ average monthly benefit next year, bringing the amount to $1,657, the agency estimates.

Henceforth, the maximum amount of an individual’s taxable earnings in 2022 subject to Social Security tax will be $147,000, the Social Security Administration (SSA) announced this week.

An increase of $4,2000 from $142,800 for 2021, the wage base limit applies to earnings subject to the tax, known officially as the old age, survivors, and disability insurance (OASDI) tax.

The growth of the Social Security wage cap from $127,200 in 2017 to $147,000 in 2022 represents a more than 15.5 percent increase over the past five years.

By the start of the new year, U.S. employers will need to adjust their payroll systems to account for the higher taxable wage base under the Social Security payroll tax and notify affected employees that more of their pay will be subject to payroll withholding.

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NJ Temporary Disability Insurance (TDI) Update

Posted on Jan 08, 2021

In 2021, the state of New Jersey has changed the mandatory employee payroll contribution for NJ Temporary Disability Insurance (TDI) :

Effective January 1, 2021, the employee contribution rate will increase from .26% of NJ Taxable wage base to .47% of NJ Taxable wage base.

The employee taxable wage base will increase from $134,900 annually to $138,200.

The most an employee can contribute in 2021 is $649.54.

All employees working in the State of New Jersey will see the payroll change effective 1/8/2021 pay date (week ending 1/3/2021 payroll)

For more information, go to:
https://www.nj.gov/labor/ea/employer-services/rate-info/

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U.S. Department of Labor proposes rule to clarify Employee from 1099 Independent Contractors

Posted on Nov 23, 2020

The U.S. Department of Labor recently issued a proposed regulation to revise Title 29 of the Code of Federal Regulations to clarify the Independent Contractor (1099) test the DOL uses for determining whether a worker is entitled to minimum wage and/or overtime pay under the Fair Labor Standards Act (“FLSA”).

The new rules are designed to clarify the rights that a misclassified 1099 Independent Contractor would be eligible for as a W-2 employee. Such employees would now earn the same wage and hour rights as any regular employee under the FLSA. The idea by the DOL is to further probe in to the legal use of 1099 Independent Contractors by companies.

“The Department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor under the Fair Labor Standards Act,” said Secretary of Labor Eugene Scalia. “Once finalized, it will make it easier to identify employees covered by the Act, while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.”

The proposed rule would:

  • Adopt an “economic reality” test to determine a worker’s status as an FLSA employee or an Independent Contractor. The test considers whether a worker is in business for himself or herself (1099 Independent Contractor) or is economically dependent on a employer for work (employee);
  • Identify and explain two “core factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself;
  • Identify three other factors that may serve as additional guideposts in the analysis: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production; and
  • Advise that the actual practice is more relevant than what may be possible in determining whether a worker is an employee or an independent contractor.

Source: US DOL

The concern around 1099 Independent Contractor misclassification is the misreporting of payroll taxes from both the 1099 and the company that uses the 1099 for services rendered. Under the new proposed FLSA rules, if a 1099 was misclassified, but is actually an employee, the employee may also be eligible for overtime hours as well.

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Third Party Payroll Solutions: A useful tool to manage employee headcount

Posted on Oct 23, 2020

2020 has been an interesting year, for lack of a better word. The COVID-19 pandemic, record high unemployment claims, and economic uncertainty has provided the need to adapt to new market conditions. When it comes to hiring or replacing talent, human resources departments and hiring managers are challenged with fiscal, social/ethical, and compliance matters.

Many companies and CFOs focus on Employee Headcount as an important metric. Headcount reporting highlights quarterly payroll expenses as well as employee benefits expenses (medical benefits, retirement, insurance costs, and paid sick leave/PTO). There are also a variety of financial ratios factoring employee headcount that executive leadership analyze to measure financial performance. According to a report provided by the Small Business Administration (SBA), employee payroll costs can add up to 40% additional expenses on top of employee gross wages. In many other cases, payroll costs can add 70% additional expenses on top of gross wages.

Third Party Payroll solutions are a useful tool for companies dealing with a headcount freeze or mandate. In these cases, an employee can return to work, but transition to an employment agency’s payroll (that provides payroll solutions). A company can bring back an employee, but not officially rehire. The employee is happy to be back at work and the company maintains its valued relationship while maintaining productivity. This is a creative solution for headcount compliance. There is no employee-employer relationship since the employment agency is now the W-2 Employer of record. The company is simply using an employment agency as a vendor or Independent Contractor.

Since the employment agency is now the Employer of Record, the agency pays the employee directly and provides all wages, health benefits, insurance coverage, as well as unemployment benefits. In many cases, an employment agency’s payroll tax burden is less than its company client so there may be additional cost savings.

This year, the federal government passed the CARES Act. Along with this legislation, came the Paycheck Protection Program, an SBA loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. Small businesses may receive loan foregivness for up to 24 weeks from the loan inception date.

What happens when the loan forgiveness period ends? Since wages will no longer be reimbursed by the federal government, should companies furlough employees or continue to keep the headcount (without the government credit)? It’s a challenging decision.

Third party payroll solutions are also an option during this transition period. If an employer or company cannot substantiate the additional headcount (post PPP forgiveness), they can still refer their employee to an employment agency as the new Employer of Record. The outcome is continual employment, increased employee morale, and headcount compliance. Additionally, there are no temp-to-hire or conversion fees to rehire an employee from the employment agency. It’s a win-win scenario.

Employees are the life line of any organization. Treating employees fairly and with respect should be the mission of any company. Unfortunately, these challenging times present difficult corporate decisions. Headcount mandates and the Paycheck Protection Program pose opposing postiions with regards to hiring. Partnering with an employment agency that provides third party payroll solutions and a background in worker compliance is a strong option that can help a company navigate through these situations.

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Now May Be The Time to Hire or Bring Back Employees with Third Party Payroll Solutions

Posted on Jul 13, 2020

The U.S. economy may be getting closer to seeing an ease on the horizon from the total lock down.  Companies will eventually need employees, more than ever, to regain productivity and efficiencies.  When that time comes, an employer will want to be in the best position to seize and rehire employees that are available for a host of valid reasons.  They’re revved up and ready to work again! 

A reduction in most recent unemployment claims statistic is encouraging as the unemployment rate declined by 2.2 percentage points in June, declining to 11.1% and total nonfarm payroll employment rose by 4.8 million in June, according to the U.S. Bureau of Labor Statistics.  These improvements in the labor market reflect the resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic.  Notable job gains occurred in retail trade, education and health services, other services, manufacturing, and professional and business services.

It is hopeful that a recovery is coming as lock-down eases and businesses plan to hire full time staff. The additional introduction of temporary employees can add value to an organization.  Temporary employees are also a useful strategy for overcoming disruptions in staff, managing ongoing projects, and delivering immediate productivity.  Temporary employees are generally accustomed to ‘jumping in’ with immediacy.  They have a keen understanding and observant experience knowing what task is needed, before it’s requested.

With many employees on furlough, now is an encouraging time for a company to re-hire staff.  There are several online courses for new learning. Many furloughed workers have taken full advantage of this opportunity to expand skills in different areas, ones which they may not have imagined immersing into prior to pandemic.  Innovation and imagination began to drive this trend.  Temporary employees are ready to present ideas learned, with a fresh presence, as well as offer and build support in an organization.

Temporary employees offer a greater impact on an organization’s ‘big picture’.  It’s a good way to try to migrate this current reality back to a closer version of normal business.

Workforce solutions are driven by demand. Third Party Payroll Solutions, sometimes known as “Payrolling Services,” are a useful tool to speed up the hiring process and bring furloughed employees back to work. A company with a hiring need or a demand to return to productivity can utilize third party payroll solutions to bring back an employee, but now on the employment agency’s payroll ( the new employer’s FEIN or Tax ID).

This tool is a useful way to circumvent compliance issues that arise from a company not operating in multiple states, each with varying legal and regulatory requirements.  If a remote worker is working from home in a state where the employer is not registered, the company with the hiring need can partner with an employment agency that provides third party payroll solutions to employ the worker in their state of residence.

This solution also proves to be beneficial for companies dealing with a headcount freeze. An employee can return to work, but be put on the employment agency’s payroll. The company can bring back the employee, but not officially rehire. A useful tool for headcount compliance. The employment agency handles the W-2 Employer relationship.

Additionally, a growing company that needs to add employees in order to sustain growth, but the costs associated with the Affordable Care Act (ACA) compliance threaten a company’s ability to remain profitable. Third party payroll may be the perfect solution.  The temporary employment agency becomes the “employer of record” with the scalability to offer ACA compliant major health benefits to those much needed employees.  The company’s employees are happy and the company can grow accordingly.

Third party payroll solutions include great flexibility, allowing a company to try candidates in a variety of roles, including part-time and full-time staffing.  Best of all, when a proven, indispensable team player is found, the company may extend an employment offer, to add the individual to their internal payroll, for a potential long-term position with company benefits at no conversion fee.

There are now many options for a company with a need to hire or re-hire. Partnering with a third party payroll solutions specialist can increase productivity while maintaining full HR compliance.

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Third Party Payroll: a great idea for Summer Interns

Posted on Jul 26, 2019

It’s summer time and the livin’ is easy. Yes, those are the lyrics to the famous Ella Fitzgerald song, but it’s also a common theme among employees that want take a summer vacation from their job. In fact, many companies bring on summer interns to share the workload and provide a work-life education.

Summer interns are a great tool to maintain office productivity to let you take that vacation. One thing many companies don’t realize is that summer interns must be paid an hourly wage according to federal and state payroll tax guidelines. You can’t get something for nothing.

Other employers hesitate to use summer interns because when they do decide to pay to play and comply with the law, they hire the intern and on board them on the company’s full time staff payroll. This scenario can frustrate the CFO and Human Resources department. Summer interns who are directly employed will add to the overall company 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 tool to alleviate such employer risks is to offload or outsource the summer interns to an employment agency that provides third party payroll solutions. With this remedy, the summer interns can still be retained, but the intern becomes 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 also act as a W-2 employer and deduct state and federal taxes as well as insure the employee (workers compensation and liability).

A good employment agency will understand compliance issues, co-employment, workers compensation risks, and payroll laws. When selecting a third party payroll solutions partner, make sure the company is financial solvent. After all, they are extending payroll on your behalf. Also, inquire about the employment agency’s employee benefits offerings. Health benefits and 401k retirement plans will increase summer intern retention if applicable.

Overall, summer interns are a great way to maintain productivity. An easy way to get the process going smoothly and quickly is to partner with an employment agency. Why not let your trusted staffing adviser handle the compliance?