John O'Connor
John O’Connor

It’s hardly a mystery why more long-term care facilities are putting independent contractors in place: lower costs. Operators can save almost a third on wages by avoiding payroll taxes, unemployment insurance, worker’s compensation coverage and other benefits directed toward regular employees, experts say.

But operators jumping into this end of the labor pool need to have policies and practices that are clearer than a cloudless sky. Otherwise, they might soon be looking at some very dark horizons.

And simply believing one is compliant hardly makes it so. Consider what happened at Mary Kay Inc. A jury recently entered an award against the cosmetics company for more than $11 million, including $10 million in punitive damages. This outcome followed a wrongful termination allegation.

At issue was whether the firm offered an independent sales agent “reasonable accommodation” following a breast cancer diagnosis. The Americans with Disabilities Act and a number of states mandate reasonable accommodations for workers.

The company argued that the requirement did not apply here, as the person involved was not an employee. As proof, the firm provided a signed agreement from the person stating she was an independent contractor. Moreover, her tax returns also indicated she was self-employed. To most casual observers, that might appear to be compelling evidence. But that’s not what the jury saw.

It should be noted that the lawsuit is on appeal and might eventually be overturned. Still, this claim should stand as a cautionary tale for any provider dealing with independent contractors. And while this may be an extreme event, case law is loaded with examples of firms being successfully sued by “independent contractors” for wrongful termination, workers’ compensation, overtime pay, health insurance benefits, and retirement plan benefits — and more.

The Internal Revenue Service offers some limited guidance in this area. The IRS uses “behavioral control, “financial control” and “type of relationship” as general indicators. But there is currently no law that settles this border dispute. However, one such attempt is underway.

In November, Sen. Bob Casey (D-PA) introduced the Payroll Fraud Prevention Act. According to the Chairman of the Senate Subcommittee on Employment and Workplace Safety, the bill will lead to accurate worker classification.

It’s not exactly what you might call employer friendly. Specifically, the measure would make the misclassification of employees as independent contractors a new federal labor offense under the Fair Labor Standards Act. It would also create a new category of worker: the “non-employee.”

And for all you lovers of extra paperwork out there, the bill would also require every business to provide a written notice to all workers performing labor or services. The notification would have to spell out whether the person being paid is an employee or non-employee. It would also need to guide those unclear about their rights to the Labor Department’s website. Further, the notification would also have to invite them to contact the Labor Department if they “suspect [they] have been misclassified.”

So while the measure adds more red tape, it still appears to be a safe distance from a final word.

Nor does it address an issue that will certainly arise if the measure becomes law: In order to sort things out, how many additional accountants will providers need to hire?

John O’Connor is Editorial Director at McKnight’s.