Business Warning of Heightened Government Focus on Misclassification of Independent Contractors

Alcott HR Group, a leading Professional Employer Organization and provider of Human Resources (HR) solutions, is advising businesses to take note of the increased attention misclassification of workers is receiving from both the federal and state governments. According to Alcott Executive Vice President Barry Shorten, on June 17, 2010, the Senate Committee on Health, Education, Labor and Pensions recently conducted a hearing on the “Employee Misclassification Prevention Act,” introduced in the U.S. Senate (S.3242) and the House of Representatives (H.R. 5107) on April 22, 2010.“If passed, the Act would amend the Fair Labor Standards Act to increase record keeping requirements and penalties for employers for misclassifying employees,” said Shorten. “The proposed legislation would require that employers maintain records of the hours worked by non-employee workers and the wages paid to them. Clearly, the message from the government is that it is taking the problem of worker misclassification very seriously.”

In addition to the recordkeeping, the proposed law would also require employers to provide workers with a “notice” which identifies a worker’s classification and states “Your rights to wage, hour, and other labor protections depend upon your proper classification as an employee or non-employee. If you have any questions or concerns about how you have been classified or suspect that you may have been misclassified, contact the U.S. Department of Labor.” Along with these statements, the notice would be required to include: 1) a Department of Labor website, which has not yet been developed and which would contain a link for online complaints; 2) a Department of Labor contact; and 3) and other pertinent information for workers.

The legislation also directs the DOL to perform targeted audits focusing on employers in industries that frequently misclassify employees and increases penalties on employers for failure to pay minimum wage and overtime ranging from $1,100 per employee for first time violators up to $5,000 per employee for repeat or willful violators. It further allows for double liquidated damages for employers that fail to accurately classify an individual as an employee and violate the minimum wage or overtime provisions of FLSA. According to estimates, the U.S. Treasury Department is expected to lose over $7 billion in payroll tax revenues over the next decade because of employers’ misclassification of employees as independent contractors. Working jointly, the Department of Labor and the Treasury Department developed a $25 million initiative giving each department greater abilities to penalize employers who misclassify workers. Under this initiative, 100 new enforcement personnel would be hired by the United States Department of Labor “DOL”) to target worker misclassification and information on violations would be shared by the DOL’s Wage and Hour Division with other DOL divisions, as well as the IRS.

The states would benefit from grants intended to help them address the problem and increase penalties at the state level. Under the legislation the states would also be required to report quarterly to the DOL the results of state auditing and investigative procedures with respect to identifying employers that may have excluded employees from unemployment compensation coverage.

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On March 8th, 2011, posted in: Help For Human Resources, Small Business Tips by
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