New Enforcement Efforts Aimed at Employee Misclassification; Employers May Avoid Payroll Tax Penalties with Voluntary Reclassification

Posted by admin on November 7, 2011  |   No Comments »

The U.S. Department of Labor (DOL) has entered into a series of agreementswith the Internal Revenue Service (IRS), as well as several state labor commissioners and other department leaders, which will enable those agencies to share information and coordinate law enforcement to end the business practice of misclassifying employees in order to avoid providing employment protections.

Voluntary Classification Settlement Program
At the same time, the IRS has launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers. The Voluntary Classification Settlement Program (VCSP) will allow employers the opportunity to come into compliance by making a minimal payment covering past federal payroll tax obligations rather than waiting for an IRS audit.

Who is eligible to participate in the program?
The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.

To be eligible, an applicant must:

  • Consistently have treated the workers in the past as nonemployees.
  • Have filed all required Forms 1099 for the workers for the previous 3 years.
  • Not currently be under audit by the IRS, the DOL or a state agency concerning the classification of these workers.

How does the program work?
Employers accepted into the program will pay an amount effectively equaling just over 1% of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first 3 years under the program, be subject to a special 6-year statute of limitations, rather than the usual 3 years that generally applies to payroll taxes.

How can employers apply for the program?
Interested employers can apply for the program by filing Form 8952,Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Where can I find more information?
Full details on the Voluntary Classification Settlement Program, includingFAQs, are available on IRS.gov by clicking here, and in Announcement 2011-64. To read more about the latest enforcement efforts by DOL and the IRS, please click here. Our section on Independent Contractors – How to Classifyfeatures important information and tips on how to properly classify your workers.

What to watch for in health care case? As Supreme Court takes up challenges to Affordable Care Act, here’s what you need to know

Posted by admin on November 16, 2011  |   No Comments »

By Tony Mauro

The game is on. As expected, the Supreme Court on Monday agreed to decide whether the intensely controversial Obama administration health care reform program is constitutional.

The dispute will be argued before the court in March, with a decision by June, plunk in the middle of the presidential campaign. It is a case well worth following. Here are the key issues and watchwords to track:

Individual mandate. Politically and legally, the most controversial part of the law is the requirement that everyone buy a minimum level of health insurance. This “individual mandate” provision infuriates people who think the government has no business requiring people to buy a commercial product. Next, some fear, government will force you to buy broccoli or solar panels.

The legal argument against this part of the law is that requiring the purchase of health insurance goes far beyond the specific powers that the Constitution gives to Congress — including the power to regulate interstate commerce.

Proponents counter that if you decide not to buy health insurance, you are, in fact, affecting interstate commerce, because someday you’ll end up in the emergency room — and the costs you can’t pay for will end up being paid by others.

Farmer Filburn. The Supreme Court often looks to its past decisions for guidance in new cases. And the most important precedent in the health care case is Wickard v. Filburn, a decision from 1942. It involved, oddly enough, a Montgomery County, Ohio, farmer named Roscoe Filburn. He was minding his own business, growing wheat for his own family consumption. But in 1941, he was penalized for growing too much wheat, under a law passed by Congress to control wheat supply and prices. Filburn challenged the law, asserting that Congress overstepped its powers because his wheat had nothing to do with interstate commerce.

The court said Congress acted properly in clamping down on Filburn, in part because his decision to grow his own wheat kept him out of the market for wheat elsewhere and could affect prices nationwide, even if slightly. If Congress can penalize Filburn for not buying wheat from others, the theory goes, Congress can penalize people for not buying health insurance.

Severability. This is a legal term that asks whether a big law such as the health care act can survive if one of its major parts — in this case, the individual mandate — is struck down. Opponents of the law who want to take down the entire law say it all rises or falls together. But the Obama administration asserts that most of the program can take effect even without the money generated by the mandate.

Tax or penalty? This seems like an eye-glazing issue, but bear with me. It has emerged as an important question in some of the lower court decisions, and the court on Monday specifically asked that both sides weigh in. Long ago, Congress passed a law preventing people from going to court to stop enforcement of a tax law before they actually pay the tax. It makes sense. If they could, imagine how many people would file lawsuits to postpone paying taxes and keep the IRS at bay.

What does this have to do with the health care law? The law states that individuals above a certain income level who refuse to buy health insurance will have to pay a penalty at tax time starting in 2015. That penalty is really a tax, in the view of some judges, so they say the old law against premature tax lawsuits should kick in. If the Supreme Court agreed, the political impact would be enormous. Challenges to the individual mandate would have to wait until 2015.

What will happen? When Congress first passed the law in 2010, few legal experts thought it could be successfully challenged in court. Congress had spoken in a massive, if controversial, piece of legislation that the courts would be reluctant to second-guess. Then the flurry of lawsuits and rulings that ensued exposed its vulnerability, especially on the individual mandate. But now that several judges, including respected conservatives such as Laurence Silberman and Jeffrey Sutton, have upheld its constitutionality, the law is looking harder to beat. Two of the three federal appeals courts that have ruled say it is constitutional.

For more information. The Supreme Court has posted the main legal briefs in the pending cases on its website here: supremecourt.gov/docket/PPAACA.aspx. It’s a helpful step the court usually does not take. Even better would be if the court would allow the broadcast of the five-and-a-half hours of arguments when they take place next year. This newspaper and I have argued for cameras in the court many times, with absolutely no success. Unlike almost every other government institution — even the CIA has a YouTube channel — the Supreme Court keeps cameras out.

The intense interest in the health care case would be a great reason for the court to finally open the doors to broadcast news media. It probably won’t, but hope springs eternal.

Tony Mauro, Supreme Court correspondent for The National Law Journal, is a member of USA TODAY’s Board of Contributors.

Delay for Summary of Benefits and Coverage and Uniform Glossary

Posted by admin on November 28, 2011  |   No Comments »

The Departments of Labor, Health and Human Services and the IRS just announced that, until final regulations are issued and made applicable, plans and insurers are not required to comply with the requirement under health care reform to furnish the Summary of Benefits and Coverage or the Uniform Glossary that were originally required to be distributed by March 23, 2012.

As you may recall, in August 2011, proposed regulations were issued, which included guidance on when, how and to whom the SBC must be distributed, templates, instructions and related materials to assist with the SBC and Uniform Glossary (details regarding these provisions were provided to you in September 2011).  The guidance left many questions unanswered and further guidance was expected.

The agencies anticipate that the final regulations will include an applicability date that gives group health plans and insurance carriers sufficient time to comply with the requirement. Therefore, until final regulations are issued and an applicability date (a date by which to comply) is provided, carriers and plan sponsors are not required to provide SBCs.

Once final guidance has been issued, we will keep you updated