Tell Us How You Misclassify Employees


The USDOL will be survey to see who knows why they are classified as an exempt employee or independent contractor.
The USDOL will be survey to see who knows why they are classified as an exempt employee or independent contractor.

That is basically the question the U.S. Department of Labor is proposing to ask in a survey the have proposed in the Federal Register. They will be asking workers if they understand how they are classified and will be asking employers to explain how they misclassify employees.
Purpose of the study
According to the USDOL:

The purpose of this study is to design and administer a new survey to collect information about employment experiences and workers’ knowledge of basic employment laws and rules so as to better understand employees’ experience with worker misclassification. The data collection effort with this group will gather information about workers’ employment and pay arrangements and will measure workers’ knowledge about their current job classification, and their knowledge about the rights and benefits associated with their job status.

They intend to poll approximately 18,000 household trying to reach 10,000 workers. They will also interview 100 business executives in an attempt to get the information they are looking for. This quote however, will give you a perspective on what they are really trying to determine.

Worker misclassification can be understood as the practice, intended or unintended, of improperly treating a worker who is an employee under the applicable law as in a work status other than an employee (i.e., an independent contractor). As a result, employees are deprived of their legal wage entitlements, including minimum wage and/or overtime, as well as programs like unemployment insurance and workers’ compensation, because such programs generally apply only to “employees” rather than workers in general.

This study in my opinion also has two other purposes beyond the one stated.
Revenue generation
The Federal Register makes it clear that justification for the study is as much about revenue collection for the government as much as for the concern for employees. They state:

According to one estimate, if only one percent of all employees were misclassified nationally, the loss in overall unemployment insurance revenue due to underreporting would be nearly $200 million dollars annually. [1] This may be an underestimate; some states report losing between 5 and 20 million dollars annually on unemployment insurance payments alone. [2] The GAO estimates that unpaid taxes total more than $2.7 billion dollars per year in unpaid Social Security, unemployment insurance, and income tax due to misclassification.

While $200 million is chump change compared to the $14 Trillion deficit , it is still $200 million or more in tax revenue they would like to have.
Second reason
The second reason for this survey is to help push forward something that has been on the USDOL’s agenda for a couple of years. This is their “Right-to-know” regulations. Evidence for this is found in the statement:

This survey will provide critical information to Department policymakers on whether workers have knowledge of their employment classification and whether they understand the implications of their classification status.

The “right-to-know” regulations would require employers to clearly document and explain to employees or contractors what their specific status is and why they are classified the way they are. Employers will be required to prepare statements on each exempt position and provide that documentation to each employee. The same thing will have to be done for every independent contractor position.
The results of the proposed survey will undoubtedly bolster their argument that workers need such protection. I often find that many HR people cannot properly explain what makes someone an exempt employee. You can be sure that few of your employees will be able to explain it.
Actions to take
There are two actions you could/should take. First you can offer comments on this proposed study. Comments are due by March 12, 2013. Addresses for comments can be found in the proposal by clicking here.
The second thing you need to do is start preparing statements, especially for your independent contractors that explain why an IC is an IC. Here is some guidance on the requirements for independent contractors. The IRS and HR: Who is an Employee?Then you may want to start doing that for all your exempt positions. Start covering this stuff in your orientations.

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