DOL Testimony Regarding The Employment Misclassification Prevention Act And Misclassification Enforcement Efforts

Posted on June 25, 2010 by Laura L. Himelstein, Esq.

In Joel Greenwald’s blog on April 30th, he wrote about The Employee Misclassification Prevention Act (“EMPA”).  EMPA is making its way through Congress and was the subject of a hearing by the Senate Health, Education, Labor and Pensions (HELP) Committee on June 17th.  The Committee heard testimony from Seth Harris, Deputy Secretary of the US Department of Labor, as well as the New York State Department of Labor Commissioner Colleen C. Gardner and others. 

Significantly, EMPA would:

·        codify misclassifications as a violation of the Fair Labor Standards Act 

·        establish civil monetary penalties for employer recordkeeping violations

·        create a legal presumption that, if an employer fails to keep accurate records, the individual is an employee rather than independent contractor

If EMPA passes, it will be even more important for employers to be diligent about properly classifying their workers and maintaining adequate paperwork to support their determinations. 

Even while EMPA is winding its way through Congress, however, employers need to be aware of potential issues regarding misclassification. As we have discussed before, the DOL and IRS are working together and with the states to increase enforcement of independent contractor classifications, particularly in the following industries: construction, janitorial work, hotel/motel services, food services and home health care. Indeed, in his testimony, Harris discussed how the DOL recently hosted a State Forum on Misclassification, which was attended by representatives from New York, Connecticut and other states. There also is a joint initiative between the DOL, IRS and 39 states to share information to target employer audits for unemployment insurance and misclassification purposes. 

In addition, Harris reported that the DOL is considering implementing a regulation that would require an employer, before classifying a worker as an independent contractor, to perform a written analysis that would be disclosed to the worker. The employer then would have to retain records of its written analysis and make them available in the event of an audit. Apparently, the DOL believes that it has the power to issue this regulation without waiting for EMPA to pass.

In sum, with all that is going on in Congress and at the DOL, it is clear that employers need to be attentive to the misclassification issue and err on the side of caution.
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Employee Misclassification Prevention Act introduced in Congress: Are your employees being misclassified as Independent Contractors?

Posted on April 30, 2010 by Joel J. Greenwald, Esq.

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.
 
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