June 19, 2008

Looking for Fraud...In the Mirror

Imagine you are an attorney in Massachusetts looking for a little work. The Office of Labor and Workforce Development (OLWD), a state agency, hires you and 10 other attorneys to examine applications for unemployment insurance. Normally, this work would be performed by state employees, but the combination of cost-efficiency lay offs and a bad economy has caused a surge in applications. The state pays you through a 1099 form. You are responsible for your own taxes. And you soon find yourself in the middle of a story concocted by Franz Kafka.

In a parallel operation (bordering on a parallel universe), Governor Deval Patrick has announced a crackdown on employers who commit fraud by misclassifying workers to avoid paying workers comp insurance, plus state and federal taxes. The governor creates an Underground Economy Task Force to ferret out abuses of the independent contractor designation. The task force resides...in the OLWD. (You can read the AFL-CIO's endorsement of the task force here.)

These two worlds collided when someone (presumably a state employee affiliated with the unions who lost employees in lay offs) dropped a dime on OLWD, complaining that the 11 attorneys hired as "independent contractors" were performing the job duties of regular employees. So now OLWD is being scrutinized by its own task force. We can only hope that members of the task force are state employees, and not "independent contractors" who have signed on to carry out a short-term project: an image arises of a dog furiously pursuing its own tail.

Management Conumdrum
Many employers face the conundrum embodied in this situation: when you have more work than you can handle - especially on a short-term basis - it's convenient to hire temporary "independent contractor" consultants to carry out the work. Hiring is much easier; there are no long term commitments. When the work has been completed, you simply terminate the contracts.

Because there is such widespread abuse of the "independent contractor" designation (did someone say "FedEX"?), these convenient arrangements are now routinely challenged. At OLWD, the questioners themselves have been called into question.

Suzanne Bump, the state's secretary of Labor and Workforce Development, is not using the word "investigation" to characterize her examination of this particular form of outsourcing. She points out that the practice began in the prior (Republican) adminstration, which had enthusiastically reduced the size of the state's workforce, only to discover they did not have enough people to do the necessary work.

"We are taking steps to reverse this practice and are looking to hire more review examiners on a permanent basis when possible," Bump stated. This in itself raises a problem: by creating regular, full-time positions to handle the jobs, the state will have to grow the budget. Regular employees cost more than "independent contractors" because you have to pay for insurance and taxes (which is one of the reasons they hired independent contractors in the first place).

What used to be routine HR functions have become enormously complicated. I am sympathetic to all employers who have to work through these often paradoxical issues. When it comes to managing a business in these challenging times, we find ourselves lost in a dimly lit, endless corridor, characters in a Kafka story, looking for the room where all the answers are rumored to reside. Like the good folks at OLWD, we eventually conclude that the room does not exist.

| 2 Comments

2 Comments

Suzanne Bump helped to dismantle the Worker's Compensation system here in Massachusetts in 1991 while we had a Republican Governor, one William Weld.

For the record, she is no friend of the injured workers in this state.

I like the Kafka analogy - I would compare your last paragraph to Kurt Vonneget.

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About this Entry

This page contains a single entry by Jon Coppelman published on June 19, 2008 2:16 PM.

Cavalcade of Risk and news roundup: NH, WV, residual market, WC cost drivers & more was the previous entry in this blog.

Brendan Doyle: Return-to-Work Person of the Year is the next entry in this blog.

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