Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist

Transcription

1 . Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist

2 . Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist

3 Presenters Jason Posel: SVP, Strategy and Solutions ClearPath Workforce Management Fort Lauderdale, FL

4 Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist Reason # 1 Cost effectively engage internally sourced contractors

5 #1. Cost effectively engage internally sourced contractors Defining Internally Sourced Non-Employees Internally Sourced Typically found through informal channels e.g. former employees, former contractors, retirees, other alumni, internal referrals etc. Formal channels include contractor sections on career sites, internal recruiters etc. Internally Sourced Contractor Externally Sourced Contractor Often includes SOW consultants Temps, Independent Contractors, Contract Workers, Interims, Consultants, Sub-Vendors Externally Sourced Use of staffing / recruitment firms to find and source contract workers

6 #1. Cost effectively engage internally sourced contractors Service Options Staffing Services: Sources and recruits workers for a specific job opening Employs and pays workers, supplying them to Business under a staffing arrangement Typically takes responsibility for performance Fees incorporate cost for recruiting and employing Contractor Payroll Services (CPS): Employer of Record: hires and pays your internally sourced workers as their own W-2 employees IC Engagement Specialist (ICES) / Agent of Record: 3rd party payment of qualified 1099 / C2C / Sub-Contractors / Sub-Vendors Contractor Compliance Program: FLSA; exempt/non-exempt; wage and hour; co-employment, IC classification process

7 #1. Cost effectively engage internally sourced contractors Comparison of Service Provider Options Services Staffing Firms Contractor Payrolling Firm

8 #1. Cost effectively engage internally sourced contractors Using a Staffing Firm to Pay Internally Sourced Contractors ICs Business Inc. Internally Sourced W-2s Staffing Suppliers Externally Sourced W-2s Many businesses often use a staffing firm to payroll internally sourced W-2s Most staffing firms lack the dedicated compliance expertise to deal with IC regulations, wage and hour laws, and co-employment issues Limited change management experience when converting ICs to W-2 status or implementing a compliance program Passing to a staffing firm is typically more expensive than a specialist payroll vendor Vendor Neutral potential conflicts of interest with other staffing firms

9 #1. Cost effectively engage internally sourced contractors Cost Savings Compared to Staffing Firm Payroll specialists core competency is payroll Drastically reduced cost-to-process Savings average 8% - 30% compared to traditional staffing company fee s No. of Contractors: 10 Avg. Length of Assignment: Pay Rate: Savings: 12 Months $50 per hour $208,000 per year *Based on 20% savings

10 #1. Cost effectively engage internally sourced contractors Best practice engagement model Business Inc. Cost savings: 8% - 30% compared to staffing firm Time saving through outsourced admin Convert long-term contractors to EoR for reduced payroll rate Contractor Payroll Partner Staffing Suppliers Process alignment and efficiencies Consolidation of all ICs and internally sourced contractors under single contract Single, consolidated invoice for all contractors under program Increased visibility Internally Sourced W-2s ICs Sub-vendors Externally Sourced W-2s Experts in compliance Evaluation of ICs to ensure correct classification Wage & Hour, exempt / non-exempt & FLSA

11 Contractor Payroll Service Best practice model for programs with an MSP and/or VMS Contractor Payroll Partner Business Inc. MSP / VMS Staffing Supplier Staffing Supplier Many larger businesses use a Managed Service Provider or Vendor Management System Best practice is to utilize a Contractor Payroll vendor alongside staffing firms Internally Sourced W-2s ICs Sub-vendors Externally Sourced W-2s Enables incorporation of a compliance program for ICs and lower rates for internally sourced workers

12 Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist Reason # 2 Reduce internal administration for contractors

13 #2. Reduce internal administration for contractors Increase your bandwidth by having a specialist manage the onboarding process, and ongoing administration, including new hire paperwork, background checks, time cards, employee relations, etc. Outsource onboarding: Contractor Payroll firm manages new hire paperwork: W-2s: I-9, W-4, employee agreement, background screening ICs/1099/sub-vendors: Corporate docs, insurance certificates, corporate policy documents, NDAs etc. Time and expense approval Online timecards and approval system SOW / PO tracking Payment processing Year end 1099 / W-2 processing Full HR support Via dedicated Client Service Manager

14 Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist Reason # 3 Hire workers in any State

15 #3. Hire workers in any State Hire workers in any location with multi-state payroll processing, funding, liability insurance and Workers Comp coverage Coverage in all 50 states Payroll processing Cross-state expertise Tax withholdings Nationwide insurance coverage Workers Compensation Errors & Omissions Liability insurance Expand into any location with little or no adjustment, reporting requirements or additional overheads

16 Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist Reason # 4 Ensure compliance with Federal and State requirements

17 #4. Ensure compliance with Federal and State requirements Ensure compliance with Federal and State requirements including IC classification, overtime and exempt versus non-exempt regulations Dedicated compliance department with expertise covering all relevant HR, legal issues including: FLSA, Wage and Hour regulations, Co-Employment, IC Compliance Advice and guidance provided on all key issues Ensure compliance with Wage & Hour regulations Huge increase in number of class-action lawsuits Established process for determining exempt/non-exempt status Follow state laws regarding pay checks on termination Co-employment risk mitigation Main risk is non-payment of tax withholdings use a credible CPS to ensure payments are made Correctly classified ICs are no risk Benefits program and language needs to be addressed

18 #4. Ensure compliance with Federal and State requirements Independent Contractor Compliance Key focus for all federal and state agencies Estimated to be 3.4 million misclassified ICs, costing gov t up to $54 billion New federal and state laws, plus state/federal agency co-operation 21 States Have Specific Legislation Targeting IC Misclassification Main risks Reclassification = back taxes, interest, penalties, fines Claims for Benefits = healthcare, 401(k), stock options, vacation/sick pay Wage and Hour Implications = back-dated salary, overtime, meal & rest periods Class-action lawsuits increasingly common Evolving and Diverse Legal Standards No Single Federal or State Test No clear definition of what constitutes an IC Not based on the actual contract

19 #4. Ensure compliance with Federal and State requirements Independent Contractor Compliance Federal Tests Federal Common Law Test IRS Test Economic Realities Test Hybrid Test NLRA FICA/FUTA, IRCA FLSA/ADEA/Title VII/ADA Title VII EEOC Test Example State Tests: California California Borello Test Title VII, ADA, ADEA CA FEHA, CA Family Rights Act, CA Labor Code, CA Workers Comp Act, CA Agricultural Labor Relations Act California Common Law Test Employment Development Department (EDD) Test California UI, SDI, FTDI, Payroll Tax California UI, SDI, FTDI, Payroll Tax

20 #4. Ensure compliance with Federal and State requirements Independent Contractor Compliance Online evaluation and classification program for Independent Contractors Web based questionnaires based on Federal and State regulations Compliance specialists make status recommendations Comprehensive training programs for managers and consultants Creation of Case Defense File for federal or state audits IC Discovery and current state evaluation Conversion of ineligible 1099 Contractors to W-2 status

21 Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist Reason # 5 Consolidate invoices and payment distribution

22 #5. Consolidate invoices and payment distribution Help your accounts payable department by consolidating invoices and payment distribution Single consolidated invoice Covers all contractors: W-2s, 1099s, Corp-to-Corp, sub-vendors Flexible billing cycles Customizable invoice configuration Payment distribution Fast, efficient payment processing Direct deposit All appropriate tax withholdings Centralize the approval and payment process, reducing internal costs of managing the payment function, and freeing up valuable time.

23 Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist Reason # 6 Use multiple vendors without additional administration

24 #6. Use multiple vendors without additional administration Access a program that enables you to use as many sub-vendors as needed without additional administration Engage any worker or vendor through your contractor payroll partner Overcome headcount, preferred supplier list restrictions No worries about additional administrative support Simple process: Agree terms with the worker/vendor Let your CSM/vendor rep know the contractors contact details Contractor Payroll Specialist takes over and onboards the worker

25 Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist Reason # 7 Minimize the Impact of the Affordable Care Act

26 #7. Minimize the Impact of the Affordable Care Act ACA impact overview Employers are not directly obligated to provide coverage to their employees Small companies (less than 50 FTEs) are not directly impacted A large employer (50 or more FTEs) that does not offer healthcare coverage to at least 95 percent of its full-time employees, is subject to a penalty if any of its full-time employees without employer-provided coverage purchases coverage from an exchange and receives premium assistance The annual penalty can be severe: $2,000, multiplied by every full-time employee, minus the first 30 full-time employees ALL full-time employees count toward calculating the penalty, even the employees with employer-provided coverage There are also considerable reporting and administrative implications Source: O Melveny & Myers attorneys, Law.com

27 #7. Minimize the Impact of the Affordable Care Act ACA will have several impacts on the use of contractors Contract workers engaged as W-2s through a vendor will be subject to ACA regulations ACA will result in an increase in the cost of using contract workers The costs of ACA have yet to be determined Option 1 will be to provide suitable coverage, estimated at between $1.50 to $2.75 per hour on top of bill rate when engaged through a vendor Option 2 will be to the $2000 penalty These costs will likely be passed by vendors to the end-client Benefits providers are not yet providing costs for corporate plans that start in 2015 According to SIA, many staffing vendors do not consider themselves the common law employer and are therefore not planning to be complaint with ACA requirements

28 #7. Minimize the Impact of the Affordable Care Act ACA Strategies Strategy 1: Use Independent Contractors ICs are not employees and therefore not subject to ACA Benefits: Stay under the 50 FTE threshold Avoid offering healthcare coverage to a portion of FTEs Risks: Only works if workers qualify to be engaged compliantly as ICs Financial risk from misclassification is high Misclassification = back taxes, fines, interest and liability claims/lawsuits Reclassification = would result in workers beings treated as non-covered employees and fines could apply to entire full-time workforce Misclassifying employees as ICs would be more costly than complying with ACA Solution: Use a Contractor Payroll Specialist to classify, engage and pay potential ICs

29 #7. Minimize the Impact of the Affordable Care Act ACA Strategies Strategy 2: Engage workers through a third-party employer Benefits: Stay under the 50 FTE threshold and avoid ACA direct impact For large employers Minimize the cost of onboarding short-term contingent workers Outsource the administrative requirements to an expert Risks: Should only be used for short term assignments (1, max 2 years) Solution: Use a Contractor Payroll Specialist to employ short-term / contract workers and manage reporting and administration

30 Top 7 Reasons Your Company Should Be Using a Contractor Payroll Specialist 1. Cost Effectively engage internally sourced contractors 2. Reduce internal administration for contractors 3. Hire workers in any State 4. Ensure compliance with Federal and State requirements 5. Consolidate invoices and payment distribution 6. Use multiple vendors without additional administration 7. Minimize the impact of the Affordable Care Act

31 ClearPath Resources Resources section of website: Whitepapers Classify Independent Workers with Confidence Top 10 Questions for Evaluating a Payroll and Compliance Vendor Webinar Library Previous Webinars Case Studies Calculators Potential IC misclassification financial risk Payroll savings calculator Newsletter subscriptions ClearPath newsletter

32 Q & A Jason Posel jason.posel@clearpathwm.com Tel: (954)