Friday, September 26, 2014

Independent Contractor Pay: Hassle free or Headache?

The NFL has a lot of problems these days. Over the past few weeks America has watched stories about NFL players that are more like episodes of COPS than Sports Center features.

But have you heard about the cheerleaders? Here's a whole different headache for the league.

Over the past year, 13 cheerleaders in five states have filed lawsuits against their respective teams claiming the teams violated minimum wage laws. How is possible that in a billion-dollar industry the sideline entertainers don't make even minimum wage?

The NFL has always given responsibility for cheerleader management to the teams. The teams either contract individually with their selected squad members as independent contractors or contract with an outsourced sponsor or management company. In turn, the women are typically paid for each game and promotional appearance during the season. Pay range for the season -- yes the entire season -- can be as little as of $100.

Keep in mind the ladies are required to attend practice weekly, come to all scheduled games during the season and post season, and may have promotional responsibilities as well. That means that starting contractor pay for an average season could be as low as $20 per month.

The contractor pay issue has become so problematic that the cheerleaders for the Buffalo Bills, the Buffalo Jills, will be absent for the first season ever since the 1960s. In Oakland, earlier this month, one cheerleader was awarded a settlement of more than $1 million for the Raiders' cheerleader independent contractor pay practices. After that, the Raiders implemented a pay program for cheerleaders, paying them $9 per hour.

With workplaces that operate globally now, hiring contractors has never been a more “in-
vogue” business practice than it is now. For a fraction of the cost of hiring and retaining an actual employee, contractors can be hired locally, nationally, or even globally to fulfill tasks or projects.  Hiring contractors not only can be easy and beneficial for both parties, but also breaks the barriers of long-term commitment for either party while operating in a flexible and cost-efficient manner. For a lot of businesses, independent contractors just make more sense – or do they?

The good news in all of this is, I would say ninety-nine percent of the people reading this column do not have cheerleader contract problems. The bad news is the NFL isn’t the only place where contractors are incorrectly classified when it comes to pay in a workplace – and doing so can easily become a bigger headache than putting the contractors under payroll.

In fact, a series of state and federal employment laws come into play when determining if an individual should be paid as a contractor or employee. The U.S. Department of Labor, state departments of labor, and the IRS have been increasing audits of employers across the country each. These audits hit big and small companies alike and require a detailed review of every person you have paid over a three-year period. Even if a contractor no longer works for a company, if he or she is deemed to have been classified as an employee the company is required to pay back all the “unpaid” employment taxes plus penalties.

It seems like it would be worthwhile to classify appropriately to make sure you don’t end up like the
Buffalo Bills without the Jills – and a lawsuit to follow, right? Check-in with us next week as we determine if you should pay someone as an independent contractor or employee.
Monica Bitrick is the CEO of Bitrick Consulting Group, a human resources agency in Idaho Falls.