I am sending you several updates from our  firm.

You can access the documents by clicking on the links provided.  If you have
difficulty accessing these documents, please contact me and I can send you a
hard copy. In addition, feel free to forward these materials to others
within your organization or others at different companies or organizations.
If you do not wish to receive these notices, contact me by a reply to this
email and I will delete you from my circulation list.

The first update that I am sending is a publication regarding the E-Sign Act
which took effect on October 1, 2000 and which allows electronic signatures
to be legally binding.  Many employers have utilized this statute to move
toward a "paperless" workplace and place all personnel documents on-line.
This article addresses the requirements of the act and gives helpful
insights into steps to take to move to a paperless workplace.  Please click
on the following link to access this article.

http://www.littler.com/publications/art_paperless_office.html
<http://www.littler.com/publications/art_paperless_office.html>

The second update is an ASAP from our firm prompted by the recent death of
Korey Stringer, an offensive lineman for the Minnesota Vikings.  This ASAP
underscores the need for employers to be aware of (and have procedures in
place to deal with) the dangers of heat stress for their employees.

http://www.littler.com/nwsltr/asap_heatstress.html
<http://www.littler.com/nwsltr/asap_heatstress.html>

Also, here is a notice regarding our upcoming Texas Employer conferences.
This year we are adding a half day conference in Austin to our regular
conferences in Houston and Dallas.




Finally, I also wanted to alert you to recent developments at the IRS.
The IRS has basically been out of the independent contractor examination
business for over five years. THE END IS NEAR. As the IRS has been
completing its reorganization, the Commissioner has moved such "1099"
examinations up to the being the IRS's number 2 priority. Currently there
are some 7000 IRS Revenue Agents (auditors) undergoing training in Dallas on
independent contractor audit techniques. The IRS has been authorized to hire
another 4000 new Revenue Agents, who should be turned loose over the next 6
months.

Earlier this year the IRS announced a more aggressive pursuit of criminal
prosecutions against "employers" who have failed to timely remit payroll
taxes as well as potential civil and criminal prosecution of taxpayers who
have claimed to be exempt from payroll taxes. See my earlier emails on those
issues.

What triggers status audits?

Sources of audits most typically come from a computer check of 1099misc
which show a high ratio of 1099 to W-2 forms issued. State audits are most
often triggered by referral from IRS regarding 1099misc or an unemployment
claim filed by a former contractor. Tips provided by disgruntled former
contractors are often a source of state audits. Adverse IRS SS-8 rulings may
now become another source of audit leads. Both the states and IRS often
target certain industries. For awhile in Southern California the intermodal
trucking industry was in the IRS's radar. All agencies love the "new
economy" as the high tech industry is now infamous for acting without
considering the fine points. The California EDD has been touring Silicon
Valley in recent years and inflicting major wounds almost everywhere it has
landed.

What should you be doing?

Well, this is a good time for a self-audit. If there is a problem, minimally
you should consider at least changing business practices going forward, if
not taking corrective action. Boilerplate independent contractor agreements
should be reviewed, not only to reflect state and federal standards (which
haven't really changed it is simply that the sleeping dragon is awakening)
but to make sure that the contractual provisions reflect the reality of the
working relationship and that such relationship is truly an independent
contractor arrangement. A well drafted independent contractor agreement is
simply good prose unless the operational relationship reflects it. A poorly
drafted agreement or one inconsistent with reality will be deadly.

What is at stake here?

When there has been a "misclassification" as to workers' status, both the
state and IRS can come in and collect all the payroll taxes that should have
been taken out to begin with. The normal audit window is three years or 12
quarters (in CA). At the state level that may include income taxes and
special employee-paid taxes (like SDI) as well as employer-paid taxes like
unemployment. At the federal level there is income taxes as well as social
security and Medicare (uncapped) taxes (both the employee and employer's
share) and employer-paid FUTA.

As a general rule it doesn't matter that the worker paid income and other
taxes as a self-employed person. The government may double dip. While there
are procedures for abating the income tax portion of an assessment, the
employer has to get an affidavit from the subject workers, who are seldom
motivated to be cooperate. A worst case scenario could regulate in combined
state and federal payroll tax liabilities 30 to 40% of compensation paid and
that isn't inclusive of potential penalties and interest.

What can we do to Help You?

We can, with respect to employment status audits, do a number of things.

1. Proactively, we work with clients (and their accountants) to conduct a
self-audit of their use of such workers; identify areas that need to be
altered; revise standard agreements; help create checklists for evaluating
the appropriateness of engaging in an independent contractor relationship.

2. If you receive an audit notice (state or federal), we can represent
(upfront or behind the scenes) you  in preparing for and/or during an audit
and we can handle administrative appeals, Tax Court and District Court
appeals too.

3. For companies with criminal tax issues or deficiencies regarding the
remittance of employment taxes, the IRS (and the state) can go after the
employees responsible on a personal level, as a "responsible person/party?"
An employee may be personally accountable for a 100% penalty equal to the
taxes and interest that the employer failed to remit. We have access to a
number of highly qualified tax attorneys that are available to work with
clients on criminal and responsible party controversies.

Littler Mendelson is the nation's largest law firm representing management
in employment and labor matters. With approximately 400 lawyers in 31
offices in the country, we have more lawyers practicing in this field than
anyone else. Please let me know if you have questions about the issues
addressed in this email or any other employment or labor issue.

Kerry E Notestine
Littler Mendelson, PC
1900 Chevron Tower
1301 McKinney Street
Houston, Texas 77010
713.652.4748
713.951.9212 (fax)
knotestine@littler.com
www.littler.com


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