CWS 3.0: June 15, 2011 - Vol. 3.14

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Legal Eagle: Feds Take Action on Misclassification

The issue of worker misclassification remains a concern to lawmakers and other federal agencies. In April, a group of Democratic senators introduced a bill that would impose new reporting requirements on employers, increase penalties for misclassification violations, and establish new protections for workers who believe they have been misclassified. Meanwhile, an appropriations bill signed into law by President Obama in April provides for more than $20 million for the Department of Labor to address worker misclassification.

The Payroll Fraud Prevention Act (S. 770), which is still in committee, seeks to impose new reporting requirements on employers, increase penalties for classification violations, and establish new protections for workers who believe they have been misclassified.

Whether the bill emerges from committee or not, other federal agencies are taking steps to address worker classification. President Obama signed into law a defense department appropriations bill in April that provides at least $21.3 million to the Secretary of Labor “for the purposes of program evaluation, initiatives related to the identification and prevention of worker misclassification, and other worker protection activities.”

The U.S. Department of Labor plans to add more than 100 employees this year to support the administration's multi-agency initiative to detect and deter worker misclassification and to strengthen and coordinate federal and state efforts to enforce labor violations arising from misclassification. Further, the department’s Wage and Hour Division intends to propose a rule that would update the record-keeping regulation issued under the Fair Labor Standards Act to “promote greater levels of compliance by employers, to enhance awareness among workers of their status as employees or independent contractors and employee rights and entitlements to minimum wage and overtime pay, and to facilitate DOL enforcement.”

These moves by the government further illustrate that employers should continue to monitor and self-audit their use of independent contractors, paying particular attention to those in long-term assignments. As we’ve reported numerous times, worker misclassification is considered an important revenue-generating tool by states as well as the federal government, and is becoming a top priority for enforcement agencies.

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