Common Employment Violations
Posted Nov 21, 2008
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Long-time MurthyDotCom and MurthyBulletin readers may recall earlier articles regarding increasing levels of government scrutiny and investigation into the hiring and employment practices of U.S. employers. These articles have focused on immigration matters such as the hiring of undocumented workers and increased enforcement for violations pertaining to H1B workers. In keeping with the likelihood that employers of foreign workers are subject to reviews of their employment practices, some of the common pitfalls that come to the attention of the Murthy Law Firm are relayed here for the benefit of our readers, with respect to general employment practices. Since our legal practice is limited to immigration and nationality law and areas relating to immigration law, like employer sanctions and U.S. Department of Labor (DOL) and U.S. Immigration and Customs Enforcement (ICE) investigation matters, we are alerting our readers to these matters. In other areas not related to immigration law or DOL/ICE investigation defense work, employers and employees should seek proper legal advice from knowledgeable employment and/or tax attorneys.
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Salary must be Paid at Regular Intervals Set by Law
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The payment of wages to employees is regulated in many respects. One matter often controlled by state law is the frequency of payments to employees. This is not an arbitrary matter that can be set by the employer based upon cash flow or other considerations. Although many lesser- skilled workers may be paid weekly, the maximum period of time that an employer can wait to pay salary for any employee is once per month. Not all states allow monthly payments, even for professional level workers. The DOL has a chart summarizing the state law requirements. As can be seen, many states require payment of wages at least semi-monthly. More information on specific requirements and other details is available through the various state labor offices. This information is usually listed under wage and hour.
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Independent Contractor Status Regulated by IRS
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We at the Murthy Law Firm sometimes are asked about employers who give employees the choice to work either as regular employees, with payment of salary reflected on the Internal Revenue Service (IRS) form W-2 each year, or as independent contractors, with IRS Form 1099 issued at the end of the year. Generally, the pay given if 1099 is selected is higher, but often there are no benefits provided. Employers need to be aware that they cannot necessarily just pick and choose how to categorize employees for tax and payment purposes. This matter is also regulated by law. H1B employees must be employees and cannot be independent contractors. Employers may prefer to use the 1099, as they may see savings in avoiding social security and Medicare and/or Medicaid taxes. However, the IRS has set definitions and requirements that determine how a worker is to be categorized. More information is available on the IRS WebSite.
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Per Diem Payments
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Another matter that our firm has seen is the payment of money to employees that is categorized as per diem. Per diem payments are also regulated. Proper per diem payments are for ordinary and necessary work-related travel (lodging, meals, and incidentals) expenses, paid in a set amount per day. Essentially, it is a way for employers to reimburse employees for expenses related to travel at a set rate, for administrative convenience, rather than requiring submission of expense reports, with receipts for expenses. Proper per diem payments, within set limits, are not taxed, as they are not supposed to be a payment of income; they are supposed to be a repayment of estimated travel costs. More information on the allowable use of per diem payments, including maximum allowable payments, is available on the IRS WebSite.
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The problems that the DOL has with per diem payments include the failure of employers to pay required H1B wages, as they are including the per diem in their calculation of prevailing wages. However, this is contradictory. Employers cannot claim on one hand that a payment is a per diem payment - not taxed as income - and then claim on the other that it qualifies as wages for purposes of the H1B labor condition application requirements. Additional problems include failure by both the employer and the employee to properly claim the per diem payments as wages in order to pay appropriate taxes.
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Conclusion
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A lack of awareness of the many restrictions and requirements that exist in immigration, employment, and tax laws can create problems for employers and employees. With increased enforcement, employers should consider their practices an open book, subject to review. The areas of immigration, employment, and tax become quite interrelated in employer-sponsored immigration. Employers need to work with qualified professional advisors, to avoid common pitfalls and investigations by the DOL and ICE, while also finding legal ways to run profitable businesses in the United States.