I recently visited with Caroline Valentine, a business associate who owns Valentine & Associates, a human resources consulting firm. In addition to helping companies recruit and retain talent, her company specializes in keeping companies out of trouble on compliance issues.
In my 26-year career in business and banking I have tended to think of HR as a necessary evil. When I was an employee I used to think it was prudent to steer clear of the HR office. Sometimes I even envisioned those HR professionals dreaming up problems just so they could fix them and have a justification for their existence. But since I’ve gotten to know this particular HR specialist, I’ve come to appreciate the very real, high-stakes issues that human resources professionals are trained to handle — and how these issues can affect a company’s bottom line.
I first met Valentine several months ago when I heard her speak to a group of small business owners. Her topic at the time was one that is near and dear to my heart, which is classifying workers as either employees or independent contractors. In my time in business finance I have learned about the importance of this HR issue — and a few well-armed IRS agents once reinforced the seriousness of that issue.
I once made a presentation about employee classification to a group of business owners, and part of the presentation was given by four IRS enforcement agents who discussing issues involving staying compliant with IRS rules. Several of those IRS guys were packing big guns! (The only reason that I was speaking on the issue of independent contractors was because the IRS agents were not permitted to teach small business owners about this very sensitive and controversial topic.) I made a number of friendly jokes about the IRS and the agents laughed.
During one of the breaks, the head Fed at our presentation told me that since the IRS was so heavy-handed with the independent contractor issue during the early and mid 1990s, congress defanged (not his words) the IRS regulations on the issue in 1997. They made the standards more nebulous and harder to enforce. So for 13 years the topic has simmered, only to resurface since President Obama took office, as the federal deficit climbs.
After I heard Valentine’s talk on the issue of emplyee classification, I learned that because there has been so much employer abuse of classifying employees as independent contractors the feds have decided they have to now go out and step up enforcement of the looser, post-1997 regulations.
A number of other things Valentine said really opened my eyes. Not only is employee classification a serious concern for companies, but there are far more issues to be concerned with than just the independent contractor issue. Many of these issues escape the radar of finance people.
There are the many employee-related compliance issues that are constantly changing and evolving, making it hard for business owners to keep up. For example, Valentine explained that the Immigration and Naturalization Service (INS) has started for the first time this year doing I-9 audits of companies. All employers in the U.S. are required to complete an I-9 form when they hire an employee. They must verify that the employee being hired has a right to work in the U.S. Look for I-9 audits to increase during the next several years. In the meantime, make sure you have all of your I-9s completed properly and up to date.