Contingent Workforce Compliance

1. Contingent Workforce Compliance �The ONLY legitimate purpose of businessis to promote the common goodthrough commerce� ~ JRZ Solo IC Compliance� Protecting Organizations That Engage Contingent Workers James R. Ziegler, PhD President, Solo W-2, Inc.

2. 1997: Incorporated as Jerzy, Inc. 1998: Processed first payroll as P.A.C.E. � Professional Association for Contract Employment 2002: Named fourth fastest growing private business in SF Bay Area by SF Business Times.  2007: Re-incorporated as Solo W-2, Inc. Services Nationwide � Currently processing payroll in about 25 states Headquartered in Concord, CA Who Are We?

3. Proprietary Services for the Contingent Workforce: Solo W-2�Employer-of-record service for self-employed persons, small business owners, freelancers and consultants. Solo 1099�Agent-of-record service for fully compliant independent contractors. Solo IC Compliance�Co-employment risk mitigation, employee training, contingent workforce compliance testing and contractor payment processing for organizations that engage consultants.  Solo Back Office�Outsourced back-office support and employee benefits for progressive staffing firms, small businesses and start-ups. Solo W-2, Inc. Branded Services

4. Solo IC Compliance� Contingent workforce compliance Co-employment risk mitigation Contractor payment processing Education and consulting What Do We Do?

5. The Strategy and the Processes that manage the: Acquisition Administration Control Of Contingent Workers

6. Temporary and Part-time Employees (HR) Your company�s employees�No Co-employment risk Tax Withholding, Benefits and Perks Usually Hourly Pay Staff Augmentation (HR or Procurement?) Gray Area�High Co-employment Risk Temps and Contract Professionals Typically Hourly Pay Outsourced Business Services (Procurement) Professional Services Providers�Low Co-employment Risk Consultants, Vendors, Facilities Management, etc. Bid Process, Statement of Work, Bill by Project or T&M, Paid by Deliverables and Milestones

7. Contract with a Staffing Vendor Agency, Recruiting Firm, Supplier Employed by Employer of Record (�W-2�) Subcontract through Agent of Record (�1099�) Contract Directly with Individual Independent Contractor Sole Proprietor (�1099�)~ income and expenses on personal tax return Incorporated Business (Corp., LLC)~ income and expenses on business tax return

8. Does the Worker Look Like an Employee who you are paying �under the table?� to avoid your obligations as an employer? To avoid paying for government entitlements? To avoid paying for employee benefits? Are You Creating a Condition of Co-employment?

9. When someone who is Self-employed Employed by another employer Is found to be employed also by you To a greater or lesser extent With respect to one or more of the following: Payroll and Income taxes Government mandated entitlements: W/C, UI, etc. Employee protections: EEOC, ADA, FLSA, Title VII, OSHA, etc. Employee benefits: Retroactive compensation Retirement contributions: Retroactive payments, ERISA Stock options Liability for negligence, criminal activity, etc., etc., �

10. Hard Costs�Easy Negotiated Rates and Discounts HR and Procurement Soft Costs�Not so Easy Process Controls, Efficiencies Finance and Operations Cost Avoidance�Difficult, Complex Contingent Workforce Compliance Legal and everybody else working together(!)

11. Contingent Workforce Compliance Risk Management Risk is a part of every activity, process, document, instruction, communication Constantly evolving process Cannot know what you don�t know Risk Mitigation Reduce exposure to avoidable risks Limit size of acceptable risks Transfer risk to someone else

12. Co-employment Compliance with applicable tax and labor laws Compliance with the common law Regulatory Issues Industry regulations, union contracts, licenses, certifications, service order agreements Intellectual Property Proprietary R&D, processes, products, trade secrets, customer lists Security People, facilities, data, general and professional liability Sarbanes-Oxley Section 404, Internal Controls

13. Governmental Audit IRS, EDD, DOL, EEOC, ERISA, FLSA, Wage & Hour Reclassification under the Common Law Back taxes, penalties, interest Legal costs to defend yourself Lawsuits by Aggressive Law Firms Former & current contingent workers Unions For: Retroactive employee benefits Overtime pay Discrimination, harassment, workers comp, UI, etc.

14. Taxes IRS estimates self-employed underpay $350 billion/year Employers withholds the taxes for employees, not for ICs Entitlements Social Security, Medicare, Workers Comp, UI Employers pay for employees, not for ICs Employee Protections Title VII, ADA, Family Leave, Discrimination Employees are protected, ICs are not

15. Some Landmark Cases Microsoft, $97 million settlement. Class-action lawsuit. Eight years, five appeals, MS lost every one. Staggering legal costs. Metropolitan Water District of Southern California, $35 million for non-retirement benefits. Retirement judgment to follow. Time Warner, $5.5 million settlement. DOL action for wage and hour violations for temps. University of California, approx. $500 million. Allstate, $2 BILLION lawsuit Smith Kline Beecham, $5.2 Million settlement City of Seattle, $11.5 million settlement.

16. Mitigate Risk Eliminate Reduce Transfer Or Exacerbate Risk Increase Create

17. Yes or No? Tenure Your company places an upper limit on how long a contingent worker can work at your company (e.g., 12 months on and at least 3 months off).

18. Yes or No?  Mark-ups on Wage To ensure that all agency-supplied contingent workers are paid fairly, your company negotiates a fixed mark-up on the gross wage that agencies pay their temps.

19. Yes or No?  Background Checks When the nature of the business requires enhanced security, your company performs background checks on your contingent workers and keeps a copy of the result in each worker�s personnel file.

20. Yes or No?  Work Visas When engaging a foreign citizen as an independent contractor, your company has the foreign citizen pay the visa application fees.

21. Yes or No?  Employment Eligibility Verification To avoid problems with the Department of Homeland Security, your company obtains a completed I-9 form from every independent contractor and staffing vendor employee.

22. Yes or No?  IRS Form W-9: Request for Taxpayer Identification Number To avoid problems with the IRS, your company obtains a valid Social Security Number from every independent contractor and staffing vendor employee.

23. Yes or No?  Contract to Hire (Temp to Perm) Your company adopts a policy to eliminate �contract to hire.�

24. Is the Contract with a Legitimate Business? Staffing Vendor Consulting Firm Fully Compliant Independent Contractor Is the Relationship that of a Client and Vendor? Treat worker as an owner-only business Or as the employee of an outside business

25. Unique Business Name Registered DBA � Fictitious Name Statement Business Bank Account Is business and personal money co-mingled? Separate FEIN Not SS# Separate Tax Return for Business Business income and expenses NOT on personal return Business Registered with State Corp or LLC. Not sole proprietorship

26. Adequate Commercial Insurance At least $1,000,000 GL Business License Registered locally Certifications common to their profession High professional standards Business Letterhead (e.g., business stationery, blank contract, purchase order, work order, change order, etc.)

27. Printed Marketing Collateral (e.g., business listings, business cards, brochures, unique business logo, logo items, professional skills profile (NOT a resume!), samples of work, testimonials, and other sales oriented content Significant Investment in Business (e.g., incorporation fees, business operating expenses, commercial insurance premiums, specialized tools of the trade, professional software applications, etc.) Paid Assistants Subcontractors or employees

28. Multiple Clients Services available to the general public. Not captive. Professional Web Presence Web site for business, service-oriented blog. Dedicated Office Space Separate phone # for business Tools of the Trade Own computer, own test equipment, etc.

29. Third-party Employment Helps But does not eliminate risk Because Government Agencies and Courts also look to Relationship between the worker and the company where they work. Common Law: the IRS �Control Standard� and tests by other government agencies. NOTE: Microsoft and MWD lawsuits involved agency employees!

30. Common Law Non-statutory law reflecting a consensus of centuries of judgments by working jurists. Accumulated Case law. Worker Status Tests are NOT THE SAME US Courts Recognize over 50 Common Law Factors affecting Worker Status. Each Government Agency follows a different list of Common Laws.

31. Employee Benefits ERISA uses a twelve-factor list. Immigration Immigration Reform and Control Act (IRCA) applies a seven-factor test. Employment Discrimination Equal Employment Opportunity Commission (EEOC) applies a test based on the "right to control the means and manner of a worker's performance". Wage and Hour Laws Fair Labor Standards Act (FLSA) applies an �economic realities� test. Extent that worker is economically dependent on business. Employment Taxes IRS applies eleven-factor test in three areas of Control. The �Control Standard�.

32. Employer-Employee Relationship �The right to direct and control the worker� Not Only the Result to be Accomplished by the Work �but also the means and details by which that result is accomplished. �not only as to what� but also how�

33. Every Contingent Worker is Somebody�s Employee Employed by self (sole proprietor is default status of every citizen and permanent resident) Employed by an incorporated business the worker owns (corporation, LLC) Employed by a business somebody else owns (staffing vendor, consulting firm, etc.) Employed by your business (gulp!)

34. Change of Worker Status From somebody else�s employee to your employee In government audit In class-action lawsuit

35. The Issues are: Whose employee is the worker? In this particular context? And how can you prevent a government agency or the courts from reclassifying the worker as an employee of your business?

36. Behavioral Control The right to direct or control how the worker performs specific tasks Financial Control The right to direct or control the business aspects of the worker�s activities Relationship of the Parties How you and the worker perceive your relationship

37. The right to direct or control how the worker performs specific tasks: Instructions � An employee is usually told: when, where, and how to work what tools or equipment to use what workers to hire or to assist with the work where to purchase supplies and services what work must be performed by a specified individual what order or sequence to follow Training � An employee may be trained to perform services in a particular manner.

38. The right to direct or control the business aspects of the worker�s activities: The extent to which the worker has unreimbursed expenses The extent of the worker�s investment The extent to which the worker makes services available to the relevant market How the business pays the worker The extent to which the worker can realize a profit or loss

39. How you and the worker perceive your relationship: Written contracts describing the relationship the parties intended to create Whether the worker is provided with employee-type benefits The permanency of the relationship How integral the services are to the principal activity

40. Contingent Worker is a Vendor Treat any contingent worker the same as: Carpenter Painter Auto Mechanic Plumber Would you ask any of these workers For their resume? To justify their wage? For their Social Security Number?

41. Begins with Terminology Vocabulary affects our thoughts and attitudes Our thoughts and attitudes affect how we act Our actions affect the nature of the working relationship

42. Employment Candidate, applicant Employee, new hire Recruit, hire Fire employee Human resources, HR department

43. HR manager 90-day evaluation period Job, position Job description Advertise a position Apply for a position

44. Resume Hiring authority, hiring manager Wage, salary, pay rate Open-ended, indefinite Employment agreement Control details of how work is to be done

45. Supervise Ad hoc request Employer-paid or mandatory skill-set training Time sheet, signed approval

46. Step 1 � Direct Source the Contract Professional Step 2 � Negotiate a Fair Billing Rate for the Contract Professional Step 3 � Refer to Solo W-2, Inc. for Independent Contractor Compliance Testing

47. Solo W-2� Converts Contract Professional to Warranted W-2� Employment Status Solo W-2� Employs Contractor Processes Payroll with Solo W-2, Inc.�s Tax ID Number Issues IRS Form W-2

48. Solo 1099� Classifies Contract Professional as Certified IC� independent contractor Solo 1099� Subcontracts Independent Contractor Processes Pass-through Payment to IC�s Tax ID Number Issues IRS Form 1099 Dynamic Compliance File

49. Third-party Assessment of Compliance Creates a strong affirmative defense against claims of employee misclassification Dynamic Compliance File with Automatic Alerts Ensure that Certified IC� Independent Contractors stay in compliance

50. Advantage to Companies that Engage Solo W-2� Employees Strong mitigation of co-employment risks: IRS reclassification. UI and Workers Comp claims. Liability claims. Class-action lawsuits. Simplified contractor billing: Consolidated invoicing. Online time and expense reporting.

51. Advantage of Solo Back Office� to Small Business Owners and Start-ups Give yourself and your key team members executive-level employee benefits. Compete more effectively to attract, recruit, reward and retain exceptional talent. Manage rapid growth and irregular demand. Easily deploy and reassign a flexible workforce. Process payroll and benefits as easily as making an ATM deposit.

52. Advantage to Solo W-2� Employee Easily convert your �Solo� gross revenues to �W-2� net wage. Obtain guarantee issue, true group insurance. Contribute to an incredibly generous 401(k) plan. Experience a lower IRS �audit profile�. Enjoy a stronger credit rating as a Solo W-2� employee. Solo W-2� employees are more attractive to larger clients. Optional contracts administration, timely invoicing and assertive collections. Continuity of employment and benefits. Simplified tax reporting, and� IRS Form W-2 at the end of the year.

53. For the greatest mitigation of co-employment risk� For the strongest affirmative defense against reclassification� Solo IC Compliance� is your best solution.

54. www.SoloW2.com