As the majority of the event marketing industry continues to walk a legal tightrope when hiring field staff members as 1099 independent contractors, Congress considers the Payroll Fraud Prevention Act, which would make it a special prohibited act to “wrongly classify an employee as a non-employee”. This act could lead to thousands of dollars in fines for each misclassification violation, leaving brands and agencies involved in executing live marketing events open to significant financial risk.
SCOTTSDALE, ARIZONA – August 13, 2014 – The event marketing industry has seen immense pressure over the past few years in regards to employee misclassification and the common practice of classifying its field team members as 1099 independent contractors, and the scrutiny has continued to intensify. The Department of Labor (DOL) crackdown on misclassification in 2012 forced many companies into a paradigm shift regarding how they onboard and classify their experiential marketing field teams, and now Congress is currently considering the Payroll Fraud Prevention Act, which would make the misclassification of employees as 1099 independent contractors a new federal labor offense. This is yet another effort by leaders in Congress to address and deter the rampant practice of independent contractor misclassification that spans several industries and effects millions of Americans each year.
The Payroll Fraud Prevention Act would expand the federal Fair Labor Standards Act to cover a new category of workers – non-employees – and make it a special prohibited act to “wrongly classify an employee as a non-employee.” The bill doubles the amount of liquidated damages for maximum hours, minimum wage and notice of classification violations, while subjecting violators “to a civil penalty of up to $1,100” for each violation or for repeat or willful violations “a civil penalty of up to $5,000 for each violation.”
“The IRS uses a basic common-law rule: Anyone who performs services for you is your employee if you can control what will be done and how it will be done,” says Jessica Stackpoole, Founder and CEO of EventPro Strategies (EPS), an experiential marketing/event staffing agency. “In 2008, it was obvious to us that the people we hire in the field for marketing events fall under this category, so we transitioned to a W-2 model. Since that time, we have seen that most experiential marketing agencies and brands are still very confused as to how this ultimately will affect them. The reality is they are putting themselves in tremendous jeopardy if they misclassify workers or work with suppliers that misclassify.”
As Stackpoole references, it is not only the hiring agency that can be held liable for employee misclassification; the organization that hires the staffing agency can be deemed a co-employer and found accountable as well. “When staffing agencies hire people as independent contractors to work marketing events, the IRS, the Department of Labor, the EEOC, state unemployment agencies, state workers’ compensation enforcement agencies and others may determine that these people should have been hired as employees,” said Joshua Woodard, partner at Snell & Wilmer, L.L.P. “If so, the governmental agency will analyze who should be deemed to be the employer by determining whether there was control, or the right to control, the talent. Unfortunately, “control” is not difficult to establish. In certain circumstances, just giving direction to the talent while at an event may be enough.” This would open anyone instructing the talent on site, including those working for the brand or marketing agency, to be named as a co-employer and opened to all associated misclassification liability.
In addition to prohibiting misclassification, another key provision in the law would also require every employer to provide a classification notice to both non-employees and employees and would be mandated to include the following: all workers’ classification statuses as an employee or non-employee; a DOL website that details the rights of employees under the new law; and instructions for workers to contact the DOL if they “suspect [they] have been misclassified.” Failure to provide this notice also carries with it heavy penalties.