Employee Misclassification Prevention Act introduced in Congress: Are your employees being misclassified as Independent Contractors?
Given the estimated tens of thousands of employers that misclassify their employees as independent contractors, on April 22, 2010, an Ohio senator introduced The Employee Misclassification Prevention Act to provide workers with benefits they are not entitled to as independent contractors. Only those classified as employees are entitled to the protections of wage and hour laws, employment discrimination laws, and unemployment and workers’ compensation insurance. This federal legislation would amend the Fair Labor Standards Act and permit penalties for improperly labeling workers as contractors.
As noted in a statement by Secretary of Labor Hilda Solis, the new bill would provide workers with the “critical workplace protections and employment benefits to which they are legally entitled.” The focus on proper classification is also recognized as a revenue-generating measure for the government. (“It is estimated that Ohio loses at least $160 million a year . . . from worker misclassification.”)
While the bill may provide some clarity in this area, currently different agencies apply different tests to determine whether a person is an employee or an independent contractor. The Department of Labor applies a seven-point test, while the IRS applies a slightly different test. Indeed, we recently wrote about stepped-up IRS enforcement of misclassification of independent contractors.
The point is that someone providing services for your company is not an independent contractor just because you and the individual agree to that status. The bookkeeper that comes in one day a week may well be a part-time employee. It depends on the nature of your relationship, the amount of control you impose, and a myriad of other factors. Given the increased legislation on both the state and federal levels in this area, it would be prudent to ensure that those who provide services for your company are properly classified.
