The DOJ and IRS join forces to end the misclassification of workers as independent contractors

If your employer has classified you as an independent contractor they may be breaking the law and you should be aware that on September 19, 2011, the U.S. Labor Department entered into a cooperative alliance with the U.S. Internal Revenue Service aimed at ending “the business practice of misclassifying employees [as independent contractors]”.  The alliance allows these agencies to share information and coordinate enforcement of employers thought to be misusing the “independent contractor” status to avoid obligations to employees and the state or federal government.

Misclassifying workers as independent contractors costs the states billions in lost revenue and  allows employers to evade state laws designed to protect employees, including failing to pay overtime wages.

Last month, the California legislature passed Senate Bill 459 prohibiting the willful misclassification of individuals as independent contractors. This new legislation creates civil penalties of between $5,000 and $25,000 per violation. Although still requiring Governor Jerry Brown’s signature, it is anticipated that this legislation will become law.

In 2010 Connecticut also passed the Employee Misclassification Act (EMPA). The EMPA, which became effective on October 1, 2010, increased criminal and civil penalties on employers for misclassifying employers as independent contractors.  In Connecticut, any employer who engages in employee misclassification is liable for a civil penalty of $300 for each violation. Also, any employer who engages in employment misclassification with intent to harm, defraud or deceive the State of Connecticut, in regard to workers’ compensation insurance payments, can be guilty of a class D felony and can be subject to a stop work order issued by the Labor commissioner.  Any employer who violates a stop work order will also be liable for a civil penalty of $1,000 per day for each violation.

On October 26, 2010, the New York Construction Industry Fair Play Act became law. Under this act, employers who violate the law willfully and engage in employee misclassification are subject to up to $2,500 in civil penalties for each affected employee for the first violation, and up to $5,000 for each misclassified worker for the second violation within a five-year period of time. Employers could also be prosecuted criminally for the misdemeanor of violating the Fair Play Act.

These laws help address the loss of standard employee protections, such as minimum wage, overtime, health and vacation benefits, anti-discrimination laws, and safety regulations, which do not apply to independent contractors.  Both employers and the “independent contractor” should understand the laws of their state.  See our prior blogs for more information regarding the definition of an independent contractor.

Do you think you have been misclassified as an independent contractor?  If so, please give me a call.