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Contract Employee's Newsletter
Helping Contract Professionals
Manage Their Careers
Vol. 5, No. 01
January 12, 2005
Edited by James R. Ziegler
A Companion to:
The Contract
Employee's Handbook
www.cehandbook.com
Sponsored by:
P.A.C.E. - Professional
Association for Contract Employment
www.pacepros.com
About The Contract Employee's Newsletter
The Contract Employee's Newsletter is a free online publication
for technical and professional contractors containing news, commentary,
tips, links to useful resources, nuggets of wisdom submitted by
readers, and anything else that seems appropriate at the time. The
CENewsletter is published intermittently, whenever circumstances
warrant and time allows. Back issues are archived online, and content
is eventually rolled into the Contract Employee's Handbook. The
subscriber list is confidential and will not be disclosed outside
this organization.
In This Issue
Read recent
issues of The Contract Employee's Newsletter.
Kudos and Testimonials
What People Are Saying About The Contract Employee's
Project
=====
Wish you a Merry Christmas and a Prosperous New Year. Everyone in
the office did a great job in keeping the paperwork going, it was
a super year for me being with P.A.C.E.
Thank you very much, best regards
Laszlo
=====
Return to Table of Contents.
From The Trenches
A Slap Upside the Head: The Education of a Deadbeat
Client
Every once in a while someone needs a reality check and a slap
upside the head. This article is about a reality check I had to
deliver to one of P.A.C.E.'s clients. The client was showing signs
that it might default on its obligation to pay for consulting services
performed by several P.A.C.E. Division Managers.
Defaults by clients are rare. Truth be told, in the past six years
P.A.C.E. has experienced a few defaults on payment, but the defaults
have always been by intermediaries such as staffing vendors
and gatekeepers; never by a direct client.
P.A.C.E.'s Division Administrators take pride in maintaining excellent
relations with client companies, so it was with some alarm that
we began to notice the classic tell-tale signs of an impending implosion:
chronically slow payments, lame excuses, and e-mail messages peppered
with weasel words.
Below is the letter we sent on a Thursday afternoon by e-mail and
also by certified post. The following Monday we received a conference
call from the owner of the company and the owner's legal counsel
with the good news that full payment would be forthcoming.
The owner and legal counsel confirmed that:
- P.A.C.E. contractors find great value in P.A.C.E.,
- Both the owner and corporate legal counsel find great value
in P.A.C.E., and
- The client company absolutely will pay the full amount owed.
The letter explains very succinctly and compellingly why so many
companies prefer to payroll their contingent workers through an
employer of record, especially one like P.A.C.E.
At P.A.C.E., we know our stuff! And we are passionate about looking
after the best interests of Contract Professionals. (We also do
a pretty good job of educating our clients and keeping them out
of trouble -- as in this example).
=========================
Mr. Client,
Company Name
RE: Non-payment for services of several contingent workers payrolled
by P.A.C.E.
Dear Mr. Client,
I am writing to you to give you some insight into why companies
use employers of record, such as P.A.C.E., to employ and payroll
their contingent workers, and to impress upon you the gravity
of defaulting on your legal obligation to make timely payments
as agreed to in the contract between P.A.C.E. and your company.
P.A.C.E. offers the best of both worlds because it combines the
benefits package of corporate, executive employment with the tax
advantages of self-employment, in a single package that is extremely
desirable to both employers and independent professionals.
Employers appreciate P.A.C.E. because it mitigates the risks
of co-employment by offering W-2 employment status and excellent
benefits, thereby greatly reducing any risk of reclassification
by government agencies, and the risk of class-action lawsuits
by disaffected agency contractors. Employers also appreciate the
low cost of P.A.C.E. compared with the high markups of ordinary
staffing vendors.
Contractors appreciate P.A.C.E. because they are covered by the
best benefits package available to any Contract Professional anywhere
in the USA. Contractors also appreciate the personalized service
provided by P.A.C.E. compared with the treatment they usually
receive at the hands of ordinary staffing vendors.
However, as much as P.A.C.E. mitigates the risks of co-employment,
and as much as P.A.C.E. contributes to highly satisfied contingent
workers, P.A.C.E. is unable to protect its clients against
self-destructive actions by the clients themselves that undermine
the risk-mitigating aspects of P.A.C.E.’s employer of record
service –- self-destructive actions over which P.A.C.E. has
no control or influence.
For your reference, here is a link,
to an article in a recent issue of the Contract Employee’s
Newsletter that offers a concise overview of the advantages of
P.A.C.E.
The IRS and various state and local government agencies have
established common-law factors regarding the distinction between
an employee and an independent contractor. The distinction is
by no means clear-cut, and there is a vast gray area between the
definition of someone who is clearly an employee and someone who
is clearly an independent contractor.
Nevertheless, the final determinant in classifying worker status
is the level of control exerted by the business over the
work performed by the individual in question. In the end, it is
the relationship between the business and the worker that
makes an individual either an employee of the company for which
the work is being done or a bona fide vendor of consulting services.
The IRS is clear on this point –- titles and contract language
are irrelevant. What matters is the nature of the relationship.
Employers control the work of employees. They do not control
the work of independent contractors. When the IRS conducts an
audit of employee status, the auditors look for evidence of control.
The IRS training manual published in 1996 puts it this way:
“Following the common-law standard, the employment tax
regulations provide that an employer-employee relationship exists
when the business for which the services are performed has the
right to direct and control the worker who performs the
services. This control refers not only to the result to be accomplished
by the work, but also the means and details by which that result
is accomplished. In other words, a worker is subject to the
will and control of the business not only as to what
work shall be done but also how it shall be done. It
is not necessary that the business actually direct or control
the manner in which the services are performed; it is sufficient
if the business has the right to do so.” Independent
Contractor or Employee? IRS Training Course 3320-102(10-96),
pg. 2-3.
The IRS holds that all workers are, to some extent, co-employees
of the employer, whether the worker is an owner-only business
entity (e.g., a sole proprietor, a one-person corporation, or
an LLC), or the worker is the employee of another business (e.g.,
a consulting firm, a temp agency, or a progressive employer of
record such as P.A.C.E.).
The value of an employer of record to your company is that the
employer of record makes sure the payroll taxes and income taxes
are withheld and paid, and that the workers are covered by government
entitlements.
Also, in the specific case of P.A.C.E., the benefit plan is so
superb that there is little chance of the contingent workers suing
your company for benefits by claiming that they are really your
company’s common-law employees. See the article titled Are
Your Approved Staffing Agencies Setting You Up For A Class-action
Lawsuit? Link to the article at: www.pacepros.com/ProTrac_html/pt_publications.html
Truth be told, the real value of a service like P.A.C.E. is that
it tends to divert the attention of the IRS and other state and
local government agencies from investigating the vast gray area
between common-law employee and independent contractor, and tipping
the balance in favor of common-law employee.
In your case, Mr. Client, the evidence of “control”
is already heavily weighted in favor of the contingent workers
in question being your company's common-law employees.
In the event that P.A.C.E. were to determine that your company
is in breach of contract for repeated failure to make scheduled
payments in a timely manner, the contingent workers being invoiced
by P.A.C.E. would undoubtedly default to common-law employees
of your company.
The consequence of reclassification by the IRS, by the relevant
state departments of employment, and by state workers compensation
commissions is enormous. The experience of reclassification and
its aftermath, needless to say, is horrendous.
First, lets look at the evidence weighing in favor of a finding
that the contingent workers are common-law employees of your company:
- You solicited the services of each worker from the general
population.
- You interviewed and hired each of the workers.
- You set the amount that each worker is to earn for their work.
- You control not only what work shall be done by each
worker, but also how it shall be done.
In the event of an audit by the IRS, which would quickly follow
a report by P.A.C.E. to the IRS of payroll abuse at your company,
it is evident that the contingent workers would be reclassified
as common-law employees of your company, and the role of P.A.C.E.
would be viewed simply as that of an outsourced payroll processing
company.
During an audit, the burden of proof is on the company to show
unequivocally that a worker is not its regular employee. It is
not enough that both the worker and the company agree on the worker’s
status as an outside vendor. If the worker looks like an employee,
walks like an employee, and quacks like an employee, the IRS will
attempt to reclassify the worker as an employee of the company.
In other words, a company that hires an independent contractor
is considered guilty until proven innocent. The overwhelming bias
of the IRS is to classify all workers as employees until the company
can prove otherwise. Even if the company ultimately wins in tax
court, the negative financial consequences of the IRS attempting
to reclassify an independent contractor can be enormous. If the
company loses an audit because a contingent worker is found to
be a common-law employee of the company, the IRS can go after
thousands of dollars in back taxes and penalties.
Mr. Client, if the contingent workers are reclassified as employees
of your company, the IRS will undoubtedly consider as NET WAGE
the money that you have contracted to pay them.
Your company will become liable for back income taxes, back payroll
taxes, plus penalties and interest ON TOP of the contracted
rate –- an amount that could easily approach 50% of net wage
–- in addition to any legal fees and court costs associated
with your defense before federal and state government agencies,
which could approach $20,000 to $100,000 per reclassified employee.
And, of course, P.A.C.E. will invoice your company for our standard
processing fee and cost of benefits on all invoiced amounts not
collected to date.
As a recognized expert on co-employment issues, I urge you,
Mr. Client, to show this letter to your legal counsel, and
then follow his or her advice, which, I believe, will be to remit
payment to P.A.C.E. immediately for all delinquent invoices.
We have been frustrated to distraction by attempts to elicit
a commitment from you to pay what you owe. Therefore, I am writing
this letter to impress upon you the gravity of the situation that
potentially lies before you.
Our final position is as follows:
Remit payment for outstanding invoices according to the following
schedule. This payment schedule is our final offer, and is NOT
negotiable:
- Remit payment in full ($XX,XXX.xx) for all invoices 60+ days
delinquent. Send payment by express delivery to arrive at P.A.C.E.
no later than 11:00am on DD/MM/YY.
- Remit payment in full ($XX,XXX.xx) for all invoices 30-60
days delinquent by DD/MM/YY.
- Remit payment in full ($XX,XXX.xx) for all invoices 1-30 days
delinquent by DD/MM/YY.
If P.A.C.E. does not receive payment in full on the scheduled
dates, we will consider it our legal obligation to declare
your company in breach of contract and notify the IRS and the
respective state employment authorities that your company has
improperly contracted the use of P.A.C.E.’s payrolling services,
and has improperly employed the labor of several common-law employees.
I trust that you now understand the value of an employer of record
service, and that you will see the wisdom of complying with our
request for payment.
Sincerely,
James R. Ziegler, Ph.D.
Executive Director, P.A.C.E.
=========================
This letter isn't malicious, and it isn't hostile. Scary? You
betcha! Assertive? You better believe it! It delivered the message
this owner needed to hear, and it got the results we needed for
our P.A.C.E. Professionals. All it took was a sober dose of reality
and a little slap upside the head.
"D'oh! So that's why it's always a good idea to pay your
employer of record on time. Thanks, P.A.C.E. -- I needed that."
It gives me no pleasure to write a letter like this one; P.A.C.E.
always tries to maintain excellent relations with all of its contractors'
clients. But, on rare occasions, it becomes necessary to dish out
a measure of tough love in the form of an educational demand letter.
As with a misbehaving adolescent, companies sometimes need to be
shown the boundaries of acceptable behavior and the consequences
of disregarding those boundaries. Enforced boundaries build character
-- respect for boundaries builds strong families.
Having written that it gives me no pleasure to write a letter like
this one, I must say that it gives me great pleasure to have
the opportunity to educate a valued client and valued member of
the P.A.C.E. family. We are looking forward to a long and mutually
beneficial relationship.
To Join P.A.C.E.
Return to Table of Contents.
Resources
Business Books Recommended by Successful CEOs
I belong to an organization in the San Francisco Bay Area called
the Alliance of Chief Executives. Their Web site is at www.allianceofceos.com.
Once a month several hundred of us (mostly entrepreneurs) gather
together to hear and meet some of the world's leading business executives.
The Alliance also gives us the opportunity to meet among ourselves
in highly confidential peer groups of a dozen or so CEOs, where
we can get support for our personal and business issues, and share
first-hand advice that is simply unavailable elsewhere.
If ever you have the opportunity to join such a group of peers,
I highly recommend that you take advantage of the opportunity. Napoleon
Hill, who wrote Think and Grow Rich, called these associations
"Master Mind Groups," and noted that their influence is
vastly greater than the sum of their membership.
The Master Mind Principle asserts that "two or more persons
working together in complete harmony toward a mutual goal or goals
[...] can achieve any goal whatsoever that doesn't violate Universal
Law - the Law of God and the rights of your fellowman..."
I believe in the Master Mind Principle, and I believe that no person
can achieve individual success individually. Success arises from
the synergies that are inherent in a tightly woven social network,
the threads of which are mutual trust and mutual respect.
Recently, Bill Shepard, a friend, business associate and member
of the Alliance of Chief Executives, asked the membership to submit
the titles of their five favorite business books. Below is the list
that Bill has compiled from the survey. It's a long list; successful
entrepreneurs are life-long learners and voracious consumers of
business knowledge.
[Incidentally, Bill is also the founder of a sister organization
to the Alliance of Chief Executives, but Bill's group is for Chief
Operating Officers. It's called the Chief Operating Officer Connection,
at www.cooconnection.com.]
Even if you are running a one-person operation, these books will
contribute practical hands-on insight and knowledge to help you
succeed. Start at the top, and work your way down the list. These
books are proven winners; recommended by the San Francisco Bay Area's
leading entrepreneurs and proponents of the Master Mind Principle.
The Top Ten Books:
- Good to Great, Jim Collins
- Who Moved My Cheese: An Amazing Way to Deal with Change in
Your Work and in Your Life, Spencer Johnson, M.D.
- Execution: The Discipline of Getting Things Done, Larry
Bossidy, Ram Charan, and Charles Burck
- The Five Dysfunctions of a Team: A Leadership Fable,
Patrick Lencioni
- Why Smart Executives Fail: And What You Can Learn from Their
Mistakes, Sidney Finkelstein
- The Innovator’s Solution: Creating and Sustaining Successful
Growth, Clayton M. Christensen and Michael E. Raynor
- Seven Habits of Highly Effective People: Powerful Lessons
in Personal Change, Stephen R. Covey
- Built to Last: Successful Habits of Visionary Companies,
Jim Collins and Jerry Porras
- Leadership is an Art, Max DePree
- Nickel and Dimed: On (Not) Getting By in America, Barbara
Ehrenreich
Top Author:
Patrick Lencioni who has the #4 position and three other books
mentioned:
- Death By Meeting: A Leadership Fable…About Solving the
Most Painful Problem in Business, Patrick Lencioni
- The Four Obsessions of an Extraordinary Executive, Patrick
Lencioni
- The Five Temptations of a CEO: A Leadership Fable, Patrick
Lencioni
The Other Books Noted:
- There’s No Such Thing as ‘Business’ Ethics:
There’s Only One Rule for Making Decisions, John C. Maxwell
- The 21 Irrefutable Laws of Leadership, John C. Maxwell
- Flawed Advice and the Management Trap: How Managers Can Know
When They’re Getting Good Advice and When They’re Not,
Chris Argyris
- How the Way We Talk Can Change the Way We Work: Seven Languages
for Transformation, Robert Kegan and Lisa Laskow Lahey
- Dialogue and the Art of Thinking Together, William Isaacs
- Crossing the Unknown Sea: Work as a Pilgrimage of Identity,
David Whyte
- Fish! A Remarkable Way to Boost Morale and Improve Results,
Stephen C. Lundin, Harry Paul, and John Christensen
- The Art of the Start: The Time-Tested, Battle Hardened Guide
For Anyone Starting Anything, Guy Kawasaki
- Right From the Start: Taking Charge in a New Leadership Role,
Dan Ciampa and Michael Watkins
- The Deadline: A Novel About Project Management, Tom Demarco
- Orbiting the Giant Hairball: A Corporate Fool’s Guide
to Surviving With Grace, Gordon MacKenzie
- Gurus, Hired Guns, and Warm Bodies: Itinerant Experts in
a Knowledge Economy, Stephen Barley and Gideon Kunda
- Branding: The 6 Easy Steps, Dave Dunn
- The Tipping Point: How Little Things Can Make a Big Difference,
Malcolm Gladwell
- The Fall of Advertising and the Rise of PR, Al Ries and
Laura Ries
- Generations: The History of America’s Future, 1584 to
2069, William Strauss and Neil Howe
- The Wisdom of Crowds: Why the Many Are Smarter Than the Few
and How Collective Wisdom Shapes Business, Economies, Societies
and Nations, James Surowiecki
- The Monk and the Riddle: The Art of Creating a Life While
Making a Living, Randy Komisar
- Jack: Straight from the Gut, Jack Welch and John A. Byrne
- A Bias for Action: How Effective Managers Harness Their Willpower,
Achieve Results, and Stop Wasting Time, Heike Bruch and Sumantra
Ghoshal
- The Lazy Way to Success: How to Do Nothing and Accomplish
Everything, Fred Gratzon
- Myth of Excellence: Why Great Companies Never Try to Be the
Best at Everything, Fred Crawford and Ryan Mathews
- Leading From the Edge: Leadership Lessons from the Extraordinary
Saga of Shackleton’s Antarctic Expedition, Dennis Perkins,
Margaret Holtman, and Paul Kessler
- Competing for the Future, Gary Hamel and C.K. Prahalad
- Selling to VITO (The Very Important Top Officer), Anthony
Parinello
- The Way the World Works, June Wanniski
- How to Grow When Markets Don’t, Adrian Slywotzky,
Richard Wise and Karl Weber
- The Death of Competition: Leadership and Strategy in the
Age of Business Ecosystems, James Moore
- Around the Corporate Campfire, Evelyn Clark
- Technology Paradise Lost: Why Companies Will Spend Less to
Get More From Information Technology, Erik Keller
- First, Break All the Rules: What the World’s Greatest
Managers Do Differently, Marcus Buckingham and Curt Coffman
- War Is a Force that Gives Us Meaning, Chris Hedges
- Only the Paranoid Survive, Andrew Grove
- Solution Selling: Creating Buyers in Difficult Selling Markets,
Michael T. Bosworth
- Customer Satisfaction is Worthless, Customer Loyalty Is Priceless:
How to Make Customers Love You, Keep Them Coming Back and Tell
Everyone They Know, Jeffrey Gitomer
- Swimming with the Sharks, Harvey MacKay
- The Effective Executive, Peter Drucker
- Solution Selling: Creating Buyers in Difficult Selling Markets,
Michael T. Bosworth
Return to Table of Contents.
Contract Employee's
Glossary
Terminology For Contract Professionals
More terms from Appendix
B: Glossary of Terms for Contract Professionals of The
Contract Employee's Handbook. These terms are from the greatly
expanded new glossary that is currently in development (not yet
available online).
Client
Context: Business Practices
A client is a person or business that purchases the professional
advice or services of another business. Essentially, a client is
a customer with whom a vendor has a contractual agreement or an
ongoing business relationship (client-vendor relationship). Independent
contractors are vendors that provide consulting services to their
clients. Both Contract Professionals and their clients must take
care to avoid the appearance of an employee-employer relationship.
Co-employment
Context: Employment and Human Resources
Co-employment is a relationship between two or more employers in
which each employer exercises significant and simultaneous control
over the same employee or group of employees, and each employer
has actual or potential legal rights and duties with respect to
their shared employees.
Co-employment occurs primarily in two situations:
- Leased employee arrangements: A leased employee is jointly employed
by both a professional employer organization (PEO) and the PEO’s
client according to terms spelled out in a contract between the
two parties, and often determined by state laws enacted to regulate
the PEO industry. Technically, leased employees are considered
to be joint employees rather than co-employees.
- Common law co-employment: A common law employee is any worker
who is determined to be the employee of an employer based on established
common law criteria relating to the working relationship between
the worker and an employer.
Government agencies with jurisdiction over employees, including
the IRS, are very clear on the point that co-employment is determined
by the relationship between the company and the worker, especially
with regard to who has the right to control how the work is done,
regardless of who actually processes the worker's payroll. Thus,
the same employee can be the employee of a staffing vendor for
purposes of payroll processing, and a common law employee of the
organization that has the right to control how the work is done.
Under the Fair Labor Standards Act (FLSA), a single employee may
have two employers. For example, when the employee “performs
work which simultaneously benefits two or more employers”,
and when “one employer is acting directly or indirectly in
the interest of the other employer (or employers) in relation to
the employee” [FLSA: 29 CFR 791.2(a) and (b)]. Clearly, any
staffing arrangement in which a company hires a staffing service
provider presents a potential co-employment risk under the FLSA.
Contingent worker
Context: Employment and Human Resources
An individual who performs contingent work. Essentially, a contingent
worker is any worker who is not a regular, full-time employee, and
who does not have an explicit or implicit contract for long-term
employment.
Deadbeat client
Context: Business Practices
A deadbeat is someone who persistently fails to pay personal debts
or expenses, as in “deadbeat dad.” A deadbeat client is
a client that pays slowly or not at all.
Employee
Context: Employment and Human Resources
A worker employed for wages or salary by another entity that is
required to pay certain government mandated payroll taxes out of
pocket and also collect and pay additional government mandated payroll
taxes plus withholding taxes from the worker's wages.
At the end of the year every employer submits an IRS Form W-2 to
the IRS for every worker they employed during the year. The W-2
form reports gross wages paid to the employee, and in this regard
it is similar to IRS Form 1099-MISC which is given by employers
to sole proprietors. However, in addition to gross wages the W-2
form also reports federal, state, and local taxes withheld from
the employee's paycheck.
The W-2 form distinguishes a bona fide employee from an independent
contractor. Employees receive a W-2 at the end of the year; independent
contractors do not.
Employee benefits
Context: Employment and Human Resources
Non-wage compensation provided to employees in addition to their
stated wage or salary. Benefits are a major contributor to the loaded
labor cost, which more realistically reflects total compensation
than salary alone. Because Contract Professionals must generally
provide their own benefits (plus out-of-pocket costs for equipment,
supplies, software, training, marketing, downtime, and unpaid holidays,
vacations and sick time), it is the loaded labor cost over the entire
year that most closely relates to an independent contractor’s
annual billings.
The National Compensation Survey, prepared by the U.S. Department
of Labor, groups benefits into five categories:
- Paid leave (vacations, holidays, sick leave).
- Supplementary pay (premium pay for overtime and work on holidays
and weekends, shift differentials, non-production bonuses).
- Retirement (defined benefit and defined contribution plans).
- Insurance (life insurance, health benefits, short-term disability,
and long-term disability income protection insurance)
- Legally required benefits (Social Security and Medicare, Federal
and State unemployment insurance taxes, and workers’ compensation).
Although benefits count as compensation, employers seldom reveal
their actual dollar value to the employee. Thus, a $100,000 salary
with a generous benefits package can provide greater overall compensation
than a $125,000 salary with minimal benefits.
The P.A.C.E., www.pacepros.com,
business model is 100% transparent with regard to benefits, and
provides Contract Professionals with the highest possible, tax-advantaged
compensation plus the best benefits package available to any Independent
Professional anywhere in the USA. Every Independent Professional
who uses P.A.C.E. as their back office and employer of record receives
a full report (essentially a profit and loss statement) accounting
for every cent of the revenues generated by their consulting services
since their last payroll.
Employee-employer relationship
Context: Employment and Human Resources
The statutory or common law relationship between an employee and
an employer. The employee-employer relationship in a tacit or implicit
contract, by which the employee provides consideration in the form
of labor, and the employer provides consideration in the form of
wages and benefits.
Employer
Context: Employment and Human Resources
An employer is an entity that controls the work of one or more
paid workers. Additionally, an employer collects and pays payroll
taxes and income tax withholdings. Another name for employer might
as well be “tax collector” because collecting and paying
taxes on your behalf is one of the things that makes someone who
pays you an employer and not a client.
Employer of record
Context: Staffing
Employer of record is the generic term denoting any third-party
employer such as a temporary staffing agency, professional employment
organization (PEO), contract employment firm, recruiting firm, or
similar business that has a contract with a client or with another
agency to provide the services of a specified individual, in which
that individual is an employee of the agency. The term is used in
the same context as the term agency of record, in which case the
agency provides the technical or professional services of an independent
contractor, as opposed to an employee of the agency.
Gatekeeper
Context: Staffing
A gatekeeper is a staffing agency that is hired by a company to
qualify and manage the company’s contingent workforce. Gatekeepers
act as prime contractors through which other staffing agencies and
IRS-compliant independent contractors must subcontract in order
to provide contract services to the client. Gatekeepers also act
as an employer of record for Contract Professionals who do not comply
with the IRS common law factors for independent contractor status.
The term vendor on premise is often used to describe the gatekeeper
role.
In some respects a gatekeeper is like a captive pass-through agency.
Most gatekeepers add their handling fee on top of the subcontractor’s
billing rate so that it is born by the client. Others take their
fee out of the staffing agency’s billing rate. In this regard,
the gatekeeper’s charge is like an access fee, not unlike the
money extracted by the school bully in return for safe entry to
the restroom.
Mitigation
Context: Staffing
Mitigation means to lessen, or to try to lessen, the seriousness
or extent of something, or to make a situation less severe or harsh.
Staffing vendors often claim that third-party employment mitigates
the risks to client organizations associated with hiring of a contingent
workforce. In fact, the overwhelming majority of contingent worker
reclassifications, disqualifications of retirement plans, and class-action
lawsuits have involved agency temps.
While employment by a third-party employer of record may mitigate
some of the risks arising from improper reporting of payroll taxes
and income taxes by independent contractors, it is clearly evident
that third-party employment is utterly ineffective against many
other contingent workforce risk factors. For example, the situation
in which "a worker is subject to the will and control of the
business not only as to what work shall be done but also
how it shall be done" trumps any attempt to mitigate
co-employment risks by using a third-party employer of record.
Reclassification
Context: Employment and Human Resources
In the eyes of the IRS and other state and federal agencies an
individual worker is either an independent contractor or an employee.
The overwhelming bias of government agencies is to classify all
individual workers as employees of the businesses that pay them.
Whenever possible, the IRS attempts to reclassify independent contractors
as employee’s of the client, and then collect from the “employer”
back taxes, penalties, and interest.
An independent contractor who does not comply with the common law
factors that define an independent contractor places the client
at risk of having the IRS or another government agency reclassify
the contractor as an employee of the client. Likewise, employees
of the client who treat an independent contractor like a fellow
employee also place their employer at risk. The consequences of
reclassification are dire, and they fall much harder on the client
than they do on the reclassified independent contractor.
In order to avoid the adverse consequences of reclassification
many companies conscientiously avoid direct service contracts with
anyone who is working as an independent contractor. Instead, these
companies prefer to use contract workers who are employed by a third-party
employer of record.
Staffing vendor
Context: Staffing
A vendor of staffing services. A company that provides one or more
staffing services to a customer or client organization. Examples
include temporary help companies, contract employment agencies,
contract recruiters, employers of record, professional employer
organizations, and direct-hire recruiting firms. Also called a staffing
services provider.
Vendor
Context: Business Practices
A vendor is a business (e.g., sole proprietorship, partnership,
limited liability company, or corporation) that sells products or
services to an individual or to another business (e.g., customer,
client, or vendee). A seller.
W-2 employee
Context: Employment and Human Resources
This is a redundant term that simply means employee. It is redundant
because all employees, and only employees, receive IRS Form W-2
from their employer at the end of the year.
Return to Table of Contents.
P.A.C.E. News
P.A.C.E. Employer of Record Service Is Not Just
For Self-reliant Contractors and Consultants
- Agency Contractors.
Do you use recruiting firms to locate contract
assignments?
- Don't be excluded from higher compensation and superior
benefits just because the agency owns the deal!
- You can earn a higher total compensation and superior P.A.C.E.
benefits, even if you use an agency to locate your contract
assignments.
- You can't afford not to use P.A.C.E. as your employer
of record.
- Contact P.A.C.E. today:
- Phone: (925) 680-0200
- E-mail: information@pacepros.com,
or
- Register
online
- Small Business Owners.
Do you and your key team members
need great benefits and the industry's best retirement program?
- Owner-only or small business: You can outsource your back
office to P.A.C.E., and give yourself and your key team members
the executive benefits normally found only in large professional
firms.
- P.A.C.E. costs less that doing it yourself, and P.A.C.E. handles
all the hassles of payroll processing, payroll taxes and income
taxes, and time consuming benefits administration.
- Finally, P.A.C.E. lets you compete with the benefits-rich
big guys for quality talent.
- P.A.C.E. represents the future of compensation and
benefits administration.
- Contact P.A.C.E. today:
- Phone: (925) 680-0200
- E-mail: information@pacepros.com,
or
- Register
online
P.A.C.E. is a Win - Win - Win - Win Solution for Downsized Employees,
Contract Employees, Independent Contractors, and Client Companies.
Check out P.A.C.E.
for the best benefits package available to ANY Contract Professional
ANYWHERE in the USA.
Return to Table of Contents.
The Contract Employee's
Project
The Contract Employee's Project is the larger context under which
the following interrelated vehicles operate to promote and defend
the interests of Contract Professionals:
- The Contract Employee's Handbook
- The Contract Employee's Newsletter
- The Contract Employee's Workshop
- Professional Association for Contract Employment (P.A.C.E.)
Return to Table of Contents.
Copyright and
Publication Info
Copyright (c) 2005, James R. Ziegler. All rights reserved.
You may copy or forward this free publication provided it is left
intact with all links and this notice unchanged. Any unauthorized
duplication, including republication in part or in full for commercial
use, is an infringement of copyright. We encourage you to freely
distribute hyperlinks to this issue of the Contract Employee's Newsletter.
Published by:
P.A.C.E. - Professional Association for Contract Employment
1355 Willow Way, Suite 244
Concord, CA 94520
USA
http://www.pacepros.com/
Editor:
James R. Ziegler, Ph.D.
Executive Director
P.A.C.E. -- Professional Association for Contract Employment
(925) 680-0200
CENewsletters@pacepros.com
Return to Table of Contents.
Disclaimer
The Contract Employee's Newsletter is designed to provide information
in regard to the subject matter covered. Use is granted with the
understanding that the publisher and authors are not engaged in
rendering legal or financial advice. If expert assistance is required
you should seek the services of a competent professional.
The purpose of this information is to educate and entertain. The
publisher and contributors shall have neither liability nor responsibility
to any person or entity with respect to any loss or damage caused,
or alleged to be caused, directly or indirectly, by the information
contained in this Newsletter or by information contained in any
web site or resource referenced by citation or hypertext link within
the pages of this Newsletter.
Return to Table of Contents.
Subscribe to The Contract
Employee's Newsletter
The Contract Employee's
Newsletter: Sign Up Now! Useful News & Updates
Return to Table of Contents.
Sign-off
I hope you have found the information in this newsletter to be
interesting, informative, and provocative. I encourage you to share
the CENewsletter with your friends, colleagues, coworkers, clients,
and agency recruiters.
Why clients? Because you need every ally you can get. Why agency
recruiters? Because they need to know the jig is up.
Wishing you success in your contracting career,
James R. Ziegler, Ph.D.
Executive Director
P.A.C.E. -- Professional Association for Contract Employment
Return to Table of Contents.
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