For many a business, the pressing need to have talented workers who know the ropes is a major incentive to bring back former/retired employees to handle projects as contingent workers. This practice will see a lot more prevalence and acceptance as a large number of baby boomers start retiring from the active workforce and effectively join the ranks of alumni and return as temporary workers. Engaging alumni makes great business sense for companies as against inducting novices and investing in a big way to train them adequately to handle the job in an effective manner. However, it is also important to avoid any unsavory legal consequences in which may arise out of engaging former employees.
By engaging an alumnus as an independent contractor, the company may find itself under the scanner of IRS for misclassification aimed at tax evasion. So, employers may take the necessary precaution of not engaging any W-2 employee as an independent contractor with only a short period in between. The aspects of due diligence employed in establishing the independent status of the contractor needs to be enforced with more vigor in the case of farmer employees to ensure protection from subsequent charges. It may also be a smart idea to engage such ICs through third party staffing companies.
When negotiating the terms of re-engagement with an alumnus, an employer is better-off avoiding any negotiation of applicable benefits to avoid liability to insurer or under the company’s benefit plan terms. Any such negotiation is possible only after establishing the eligibility of the alumnus for benefits – whether health, pension or retirement – under the company’s plan document. This is important to avoid subsequent exposure to risk and failure as plan documents, in accordance with federal laws like ERISA, lay down the company’s policy on treatment meant for new and existing employees with regard to benefit plans in specific detail. This could involve inclusion in a pension plan for putting in a specific number of work hours in a plan year, or elimination from a retirement plan for people who get re-employed. Similarly, health plans may have exclusions of certain categories of employees. So, it is important to be thoroughly aware of the provisions laid down in the plan document with regard to the various benefits and their applicability to the returning alumni. While changing the terms of coverage is allowed by the IRS, with some limitations – it is a better idea to be familiar with one’s plan document to avoid being caught in issues with errors of omission and commission.
If the benefit plan is structured to define or restrict eligibility with a specific break-in-service requirement, it may prove a hindrance to any ambitious plans being made to bring back alumni. In such situations, it may be necessary to revise the plan to the needs of the business.
Let us discuss a few more issues with re-engaging alumni, in the next post.
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