The Federal government, specifically the U.S. Department of Labor (DOL), continues to aggressively pursue a crackdown on the misclassification of workers as independent contractors. Below is the preamble to a new DOL Administrator’s Interpretation of the rules for pursuing enforcement action against employers that misclassify workers.
While it is not new law, it does portend of a more narrowly defined interpretation that might precipitate investigation and enforcement action, and cause the courts to take a different view of misclassification; less beneficial to employers.
Following this preamble is a link to the full 15-page document.
Misclassification of employees as independent contractors is found in an increasing number of workplaces in the United States, in part reflecting larger restructuring of business organizations. When employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation. Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers. Although independent contracting relationships can be advantageous for workers and businesses, some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor laws.
The Department of Labor’s Wage and Hour Division (WHD) continues to receive numerous complaints from workers alleging misclassification, and the Department continues to bring successful enforcement actions against employers who misclassify workers. In addition, many states have acknowledged this problematic trend and have responded with legislation and misclassification task forces. Understanding that combating misclassification requires a multi-pronged approach, WHD has entered into memoranda of understanding with many of these states, as well as the Internal Revenue Service.1 In conjunction with these efforts, the Administrator believes that additional guidance regarding the application of the standards for determining who is an employee under the Fair Labor Standards Act (FLSA or “the Act”) may be helpful to the regulated community in classifying workers and ultimately in curtailing misclassification.
Click the link for a PDF of the entire document.
Michael Nossaman is the founder of the PSC
Photo courtesy of FreeImages.com/Annette Bergner