How employers can avoid costly mistakes

Following the proper guidelines for classification of independent contractors and the use of background checks can ensure your agency's salary expenditures are spent wisely.

With industry salaries in such a strong place, according to the 2015 PRWeek Salary Survey, it is important PR firms ensure their employment practices minimize potentially costly labor missteps. To that end, there are two key areas of current concern. First, keeping the "independence" in the independent contractor relationship. Second, the federal law governing background checks.

•How free are freelancers?

More than ever, firms face increased risks of misclassifying workers as independent contractors when the law regards them to be employees. A company’s misclassification of its contractors increases the likelihood of Department of Labor audits and individual or class action lawsuits by workers claiming they are entitled to overtime and other employee benefits, even though they were paid as independent contractors.

In fact, several PR firms have recently received Labor Department audits for both a particular individual as well as "all similarly situated workers." These audits, which frequently lead to fines and penalties, can be triggered easily by just one disgruntled "independent contractor," by an anonymous complaint, or by a contractor who files for unemployment benefits claiming he or she should have been treated as an employee.

The greater the degree of direction and control the PR agency exercises over the method and means by which the worker performs his or her job duties, the more likely the worker – even one who is paid as a consultant and receives a 1099 Form – will be classified as an employee.

Although no one factor is conclusive in determining employee status, here are several relevant factors to consider:

•Does the individual work exclusively for your firm?

•Does the individual use his or her own equipment or that supplied by the PR firm?

•Does the individual perform services different than do employees of the firm?

•Does the individual maintain a separate business?

•Does the individual have any indicia of employment such as a company title, business card, or email address?

•Does the individual have an expectation of an ongoing relationship with the PR firm or is this a very isolated project?

•Does the company have a written agreement with the individual stating that he or she indemnifies the PR agency for taxes due, negligence, misconduct, and misclassification risk?

•Background checks

Another important area of concern is the increasing use of background checks in the employment process. The Fair Credit Reporting Act requires all companies to obtain a written consent from both applicants and employees before having a third-party firm conduct a background check on them. The law’s requirements are limited to credit checks, but extend to all types of background checks that a company – such as a PR agency or an entity that it may hire – may perform on candidates and existing employees.

In fact, the Federal Trade Commission recently stated that the law’s requirements even apply to social media background checks. Therefore, companies working with PR firms to provide background reports must take reasonable steps to ensure the maximum possible accuracy of what is reported from social networks and that it relates to the correct person. PR firms using such companies want to ensure they take the proper measures to comply with the act, including providing copies of reports to people and having a process in place if individuals dispute what is said about them in a report. Firms should also err on the side of caution and assume the law applies to any background checks conducted on independent contractors.

The following are the key requirements of the Fair Credit Reporting Act:

•Tell the applicant or employee you might use the information from the background check for decisions about employment.

•The notice must be in writing and in a stand-alone format. It cannot be in an employment application.

•The applicant or employee must provide written permission for a background check to be conducted.

There are also requirements if a PR agency does not hire – or fires – an employee based upon information obtained through a company in the business of compiling background checks. The critical step is that before a PR agency takes an adverse employment action, it must give the applicant or employee a notice of the report it has used to make its decision and provide the person with an opportunity to review the report and explain the negative information. Similarly, after the PR firm takes the adverse employment action, it must tell the employee they were rejected because of the information in the report and related information in a form that should be approved by an experienced attorney. If a PR agency is working with a staffing firm, the agreement between the two entities should clearly address that the latter is obligated to comply with the Fair Credit Reporting Act.

Following these guidelines for the proper classification of independent contractors and the use of background checks can ensure your agency's salary expenditures are spent wisely.

Michael Lasky is a senior partner at the law firm of Davis & Gilbert LLP, where he heads the PR practice group and co-chairs the litigation department. He can be reached at mlasky@dglaw.com.

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