On January 24, 2013, the U.S. Department of Labor (“DOL”) proposed to conduct a first-of-its-kind survey of employers and employees about their experiences and knowledge of worker “misclassification.” Worker misclassification occurs when a bona fide, common law employee is classified to be an “independent contractor” so as to avoid tax withholding, overtime pay and insurance requirements such as Workers Compensation and Unemployment Insurance. Such worker misclassification can occur by intention or simply because the employer is not properly understanding and applying the law.
The proposed survey appears to be an effort to revive the stalled Employee Misclassification Prevention Act that was first proposed in 2010. Here are some of the Act’s key points:
a. Recordkeeping and Notice:
- Requires employers to keep wage and hour records of workers who are not employees and 1) are engaged in the course of the employer’s trade or business and 2) for whom the employer is required file an IRS 1099. The record keeping requirement also extends to certain non-employees providing services through business entities that they own.
- Creates a rebuttable presumption that, when an employer fails to keep wage and hour records or provide a worker with notice of classification, the worker will be considered an employee.
- Requires that records kept pursuant to the Act include an accurate classification of the worker as either an employee or a non-employee.
- Requires that all employees and non-employees be given written notice of their classification and that they be directed to DOL employee rights resources.
b. Prohibitions and Penalties:
- Makes it a violation of the Fair Labor Standards Act to discharge or discriminate against a worker because he or she has opposed any practice concerning his or her classification.
- Makes it a violation of the Fair Labor Standards Act to misclassify an employee.
- Extends a private right of action to misclassified employees to recover lost wages and, when an employer also violates minimum wage or maximum hour standards, double liquidated damages.
- Subjects employers to a civil penalty up to $1,100 for misclassification violations or violations of minimum wage or overtime standards and up to $5,000 when such violations are repeated or willful.
c. Employee Rights Website – Directs DOL to establish a website summarizing the rights of workers under this Act.
As an amendment to the Fair Labor Standards Act, the proposed law would require employers to: 1) document their reasons for worker classification and make that documentation available to the DOL upon demand; and 2) notify workers of their classification and of their right to call upon the DOL to audit their employer’s classification practices.
The proposed Act and survey demonstrates the federal government’s continuing commitment to pursue the Act’s corrective measures in an effort to recoup billions in lost tax revenues.
If you have any questions about this important area of focus or need assistance evaluating your current practices regarding worker classifications, please contact me, Gary Young, or the Scarinci Hollenbeck attorney with whom you work.