Missclassification…A Big Concern

by | Jul 3, 2011 | General | 0 comments

Missclassification Concerns

The Senate recently held a hearing on the Employee Misclassification Prevention Act (H.R. 5107, S. 3254.) This bill requires employers to provide notice to employees and those classified as non-employees of their classification, that their rights to wage, hour, and other labor protections depend upon proper classification, and to direct them to the Department of Labor for further information about their rights. It also requires companies to retain that analysis to give to Wage and Hour Division enforcement personnel who might request it. The legislation would impose civil penalties of up to $1,100, or up to $5,000 for repeated or willful violations, for each misclassification or violation of the record-keeping or notice provisions. If a misclassification accompanies violations under the FLSA’s maximum hours or minimum wage requirements, a worker could recover double his or her liquidated damages.

While misclassifying a single worker may lead to some liability for overtime payments and other benefits, employers should take a hard look at the bigger picture. The IRS has stepped up enforcement of rules regarding independent contractors. Early this year, the IRS started deploying auditors to conduct intensive audits in different industries and including both large and small companies. The federal government believes that misclassification is on the rise given that independent contractors receive fewer incentives to trim costs during these difficult economic times. The federal government is reportedly offering grants to state governments to investigate and crack down on missclassification. We must also consider that an IRS audit could lead to an audit by the federal or state Department of Labor.