If you’ve come anywhere near an HR newsletter in the last six months, you know there’s a big crackdown in progress targeting misclassification of employees as independent contractors.  The heat has risen to the point where one piece of pending legislation would make misclassification a federal offense regardless of whether the infraction was intentional or not.

Why do the IRS and DOL have their collective knickers in a bunch over misclassification?

It all comes down to simple economics.  Federal and state tax revenues are down.  Not a good thing if you’re in charge of balancing budgets.  Meanwhile, non-compliance with IRS and DOL regulations governing which workers are classified as W-2 employees versus 1099 contractors is going up.  This equates to fewer tax dollars coming from employers without a corresponding increase in tax revenues from independent contractors.

Combine this with historic federal and state budget deficits, and you’ve got a recipe for stepped up surveillance and enforcement.  Witness two recently introduced bills:  The Payroll Fraud Prevention Act, and The Employee Misclassification Prevention Act.  Both bills are still in committee, but they underscore how much attention this issue is getting in Congress.

Still not convinced this iron is hot? Allow me to remind you about the widely announced partnerships between the IRS, DOL, and several state agencies who are now sharing employer information with the goal of tracking down practitioners of worker misclassification.

The U.S. economy’s jobless recovery has improved over the past few months to a mostly jobless recovery.  While most pundits are cautiously optimistic about the employment outlook, employers in many states are still facing increases in unemployment insurance taxes.  Yes, you read that right.  Unemployment is down and unemployment insurance taxes are going up.

Like you, I have a pretty good idea of how the unemployment insurance system is funded … via taxes that employers pay into a dedicated state account.  But what happens when those accounts run dry?  Because of our economy’s tepid recovery, ongoing claims for unemployment insurance remain high.  In some states, the cash reserves to pay these claims have long since been depleted.

Yet people in these states continue to receive unemployment checks.  Where’s the money coming from?

Title XII of the Social Security Act allows states to borrow money from the U.S. Treasury to cover the cost of these claims.  Now, however, Uncle Sam wants his money back.  If it takes your state longer than two years to make good on its Title XII loan, you can expect an increase in the federal portion of your unemployment insurance tax (FUTA).  If your company is located in Indiana, Michigan, or South Carolina you already know what I’m talking about.  Plus, some state constitutions require an increase in their SUTA (and other) rates to accelerate repayment of Title XII loan balances.

By my count, 22 states have outstanding balances more than two years old and are facing increased FUTA rates. So, forewarned is forearmed.  Keep an eye on your state’s Title XII balance.  You can find it at the following DOT website:

http://www.treasurydirect.gov/govt/reports/tfmp/tfmp_advactivitiessched.htm

Last week I attended a Leadership Certificate Program in Washington D.C.  What I took away from the three days is how true leadership differs from good old-fashioned management.

Our instructor, Martin Armstrong, is retired military and served time in Afghanistan.  He is currently a Senior Director at Time Warner Cable in North Carolina.  He was full of stories … which reminded me of someone back at the office, but I won’t mention any names (Alva Brown).  Martin shared stories about great leaders that have impacted his life both in and out of the military.

Day one, we learned about the different leadership styles and discovered where we fit in.  We discussed the weaknesses that each style can exhibit and were given tools to help build on our personal weaknesses.  It was great to learn that I actually have a leadership style!

Day two, we split into groups and built the old index card, paperclip, and tape tower.  My group won … of course!   Unfortunately, the prize was more index cards, paperclips, and tape.  It was really interesting to see how different groups of people go about accomplishing (or not accomplishing) the same task. And it was fascinating to see how leaders emerge.  It made an otherwise goofy exercise somewhat poignant.

The final day was full of topics.  Evidently, I felt like I hadn’t received enough attention that day, so I volunteered for a role play exercise.  Turns out, I was the lucky individual who had to call an employee in to discuss a very awkward issue …  body odor.  This exercise reminded me how much “fun” being a leader can be.  Even so, I couldn’t wait to get back and practice some of my newly acquired skills … not that body odor is a burning issue at PayReel.

So, what is the difference between being a leader and being a manager?  I guess the moral of Martin’s stories was that to manage is simply to enforce policy.  To lead is to take a stand for the success of your employees and teammates.  Sometimes that involves following the rules … sometimes that may involve changing them.

Anyhow, before heading back to Denver, I was able to spend the weekend with one of my daughters who lives in D.C.  We hit the National Zoo, shopped, and ate too much.  It was perfect!