I have written numerous times on the dangers of employee misclassifications. You can find some of those posts here, here and here. The U.S. Department of Labor has made it very apparent that they see employee misclassification as their prime mission. They have been enlisting state departments of labor in this effort and they just added another.
Memorandum of Understanding
On January 13, 2015 the USDOL released a press announcement that stated that they had signed an MOU with the Florida Department of Revenue “with the goal of protecting the rights of employees by preventing their misclassification as independent contractors or other nonemployee statuses.” Florida joins Alabama, California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington in agreeing to participate in what the USDOL calls their Misclassification Initiative.
The effort of this initiative is focused on the improper use of independent contractor status by business. In 2013 the Wage and Hour Division recovered more than $83,051,159 in back wages for more than 108,050 workers in industries, such as janitorial, food, construction, day care, hospitality and garment. WHD regularly finds large concentrations of misclassified workers in low-wage industries. Dr. David Weil, administrator of the Wage and Hour Division said “Misclassification deprives workers of rightfully-earned wages and undercuts law-abiding businesses.” Wayne Kotowski, the Wage and Hour Division’s regional administrator for the southeast said “These collaborations allow us to better coordinate compliance with both federal and state laws alike.”
The press release explained the reasoning this way:
Business models that attempt to change or obscure the employment relationship through the use of independent contractors are not inherently illegal, but they may not be used to evade compliance with federal labor law. Although legitimate independent contractors are an important part of our economy, the misclassification of employees presents a serious problem. Independent contractors are often denied access to critical benefits and protections, such as family and medical leave, overtime compensation, minimum wage pay and unemployment insurance, to which they are entitled. In addition, misclassification can create economic pressure for law-abiding business owners, who often find it difficult to compete with those who are skirting the law.
It can cost you
Incorrectly classifying workers as independent contractors can cost you, both on the federal and state level. On the federal level the USDOL pay attention and so does the Internal Revenue Service. Penalties and fines can amount to substantial amounts of money. For states it is an issue not only of tax revenue but also one of workers’ compensation coverage. With so much at stake it is important to know the rules. I have detailed these in a post called Using Independent Contractors just got riskier! I suggest you read this if you use or are thinking of using independent contractors. You should also check out a post called The IRS and HR: Who is an employee.