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Crowdstaffing featured as Rising Star and Premium Usability HR platform in 2019

Crowdstaffing has earned the prestigious 2019 Rising Star & Premium Usability Awards from FinancesOnline, a popular B2B software review platform. This recognition is given out annually to products[...]

May 13, 2019

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Exempt vs. Nonexempt: The Next Worker Classification Focus

worker classificationWorker Classification Isn’t Just for Independent Contractors

According to the Government Accountability Office and the Freelancers Union, one-third of the American labor force is populated by varying iterations of contingent workers, contractors and freelancers. That’s 42.6 million workers, and it’s a fascinating statistic to ponder. The last tally took place in 2006. The U.S. Bureau of Labor Statistics now predicts this number to have risen by at least 30 percent.

If the composition of the U.S. workforce by 2020 will see indirect labor penetrating 40 percent of all positions, as Intuit’s glimpse into the crystal ball predicted, we may be well ahead of schedule. Effectively and compliantly utilizing contingent workers offers companies an attractive and affordable alternative to engaging full-time employees.

Employers also see the rising freelance economy as good for workers, who get to set their own hours and work from the comfort of their homes. Many of America’s 77 million Millennials agree. They embrace the liberating aspects of contingent work: highly flexible schedules, control over work-life balance, more time for family matters and community, and the freedom to pursue continuing education.

Regulators, meanwhile, continue to warn organizations that employee misclassification remains an ongoing problem. Most employers are aware by now that audits, enforcement actions and lawsuits focused on the misclassification of independent contractors have become commonplace. The examples of past judgments, which led to multi-million dollar payouts by non-compliant enterprises, are well known: Microsoft, FedEx, Northwestern Mutual, Hewlett-Packard, IBM and Coca Cola.

More recently, on May 20, an Arizona-based drywall installer incurred the wrath of the U.S. Department of Labor as the result of a Wage and Hour investigation. To remedy the situation and prevent future occurrences, the owner of Paul Johnson Drywall Inc. agreed to pay $556,000 in overtime back wages, $44,000 in civil penalties, and liquidated damages to at least 445 current and former employees.

The staffing supplier involved was found guilty of misclassifying its contractors. Yet Paul Johnson Drywall ran afoul of classification standards in a separate issue, according to federal investigators, by failing to pay proper overtime wages to employees or maintain thorough, accurate records. And this brings up a new wrinkle in the complex fabric of administering outsourced labor.

In recent years, claims by employees for unpaid overtime wages have become a booming area of employment-related litigation. Due in part to the global nature of the economic recession, this trend now affects employers in jurisdictions around the world. Because litigation over claims concerning unpaid wages can be a costly affair, it’s crucial that businesses make classification decisions that reach beyond qualifying independent contractors – they must have an awareness of the potential liability inherent in designating workers as exempt employees.

MSPs and their staffing partners have new opportunities to help the companies they serve realize a greater degree of risk avoidance and savings by expanding classification strategies to exempt and nonexempt positions, which benefits clients and workers alike.

How MSP/VMS Programs Help Clients Remain Compliant

For most workers, the determination of exempt or nonexempt categories typically depends on salary, manner of payment and duties performed. These requirements are outlined in FLSA Regulations (promulgated by the U.S. Department of Labor). Most employees must meet all three “tests” to be considered exempt.

To effectively manage a contingent workforce, staffing suppliers and MSPs work closely during program implementation to study prevailing regulations and incorporate those laws and guidelines into standard operating procedures, enforcing classification protocols that are equitable to workers and clients.

MSPs and staffing suppliers should also consider presenting clients with a reasoned case for classifying each position, predicated on FLSA standards: minimum salary thresholds, hours worked in any week, skills required for the position, education requirements for the position, number of people the worker will directly supervise, reporting structures, percentage of time spent in duties considered exempt, and more. This sort of deep-dive analysis will foster greater visibility, collaboration, agreement and unity as the program matures to include new job categories.

Compliance Enabled by Automation

The presence of a VMS also strengthens compliance. Automated approval processes ensure that all required parties authorize timecards and other related transactions. Assignment management functionality enforces compliance with established tenure policies and breaks in service. Most VMS requisition modules include fields to denote exempt or nonexempt status. They also allow templates to be created for specific categories, with targeted supplier distribution functionality.

Through ongoing innovations, industry leading VMS platforms now offer automated classification systems as part of the requisition process. Fieldglass’ Decision Wizard resolves classification challenges by guiding users in approval workflows and selecting the proper engagement options through a predefined questionnaire. The process supports an additional layer of protection to reduce misclassification, “such as hourly consultants masquerading as project workers to bypass headcount restrictions or tenure policies.”

Agile-1’s award-winning Acceleration VMS also launches a questionnaire that contains logic to drive users to the correct type of request: contingent worker, independent contractor, SOW/project-based contractor or direct hire candidates. The tool offers an immediate method for mitigating the risk of misclassification, before a requisition has been created and distributed.

Ongoing Prevention and Compliance

According to Staffing Industry Analysts’ November 2013 seminar, MSPs and their staffing partners can further promote a contingent labor program free from undue risk through the following best practices:

• Training their internal staff and client hiring managers on hours worked (what is included and not included), accurate timekeeping and reporting issues.

• Ensuring that all contingent workers are trained in timekeeping systems and the proper entry of hours.

• Providing ongoing education to hiring managers, procurement officers, HR and payroll managers on compensation, wage and hour laws.

• Retaining documented, auditable records of training completion.

• Requiring nonexempt workers to review time records, certifying the accuracy and completeness of the entries.

• Ensuring that supervisors review submitted time records to validate that nonexempt workers have recorded all hours worked.

• Utilizing a VMS with a defined approval hierarchy (e.g., hiring manager, HR, payroll, et al).

• Hosting periodic reviews and policy reinforcement sessions with stakeholders.

• Conducting regularly scheduled and ongoing compliance audits.

• Creating a proactive complaint and investigation process for wage issues, with an established policy for remedial action if violations are discovered.

• Assessing any supervisor or hiring manager bonus structures to ensure that these incentives are not encouraging inappropriate actions.

Wage and hour class actions continue to dominate the employment landscape. Laws from the 1920s through the 1940s are being forced to apply to 21st century workplaces. As virtual workers and digital operations replace assembly line schedules, hiring managers may not believe classification makes sense; or because litigation may not have materialized for years, these managers fall under the false assurance that nothing will happen. However, legal experts collaborating with SIA warn that “enforcement has arrived in the form of an army of Plaintiff Attorneys participating in a gold rush.” Working with a robust MSP/VMS program, staffed with experts who prioritize the processes of workforce compliance and labor regulation, removes doubt and unnecessary risk.

 

Photocredit: David Martyn Hunt via Flickr

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