Common Employment Violations03 Apr 2018
Long-time followers of MurthyDotCom have likely read some of our articles on the increase in government scrutiny of the hiring and employment practices of U.S. employers. These articles focus on immigration compliance. However, employers of foreign workers also need to concern themselves with general employment practices that apply to all U.S. employers. Some of the common pitfalls that come to our attention at the Murthy Law Firm are described here for the benefit of our readers. Our practice is limited to immigration and nationality law and areas related to immigration law, including U.S. Department of Labor (DOL) and U.S. Immigration and Customs Enforcement (ICE) investigation matters. Readers are alerted to these general employment matters that sometimes come to light in an immigration context. In such areas, employers and employees are advised seek proper legal advice from knowledgeable employment and/or tax attorneys.
Salaries Must be Paid at Regular Intervals Set by Law
The payment of wages to employees is regulated in many respects. The frequency of payments to employees is controlled by state law. This is not an arbitrary matter that can be set by the employer based upon cash flow or other considerations. The maximum period of time that an employer is allowed to wait to pay salary for any employee is once per month. However, 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.
Independent Contractor Status Regulated by IRS
We at the Murthy Law Firm sometimes are asked about employers who give their 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 for contract workers (using the 1099) is higher, but no company benefits are 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 regulated by law. H1B workers must be employees and cannot be independent contractors. Certain employers may see benefits to using the 1099 and contractors, reflected in savings on Social Security and Medicare 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.
Per Diem Payments
Employer payments to employees categorized as per diem is another matter we at the Murthy Law Firm see among our clients. 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 an established 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 considered as income, but 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.
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 calculations 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.
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.
Originally published November 21, 2008, the information in this NewsBrief has been updated for MurthyDotCom readers.
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