CWS 3.0: August 3, 2011 - Vol. 3.18

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Misclassification Could Cost Millions

Independent contractor misclassification remains an issue companies should be keeping an eye on, as suits and regulatory investigations continue to make news.

The July issue of Legs & Reg Advisor, a publication produced by Staffing Industry Analysts and law firm Littler Mendelson, discusses four separate misclassification cases, three of them suits brought by the independent contractors themselves.

Such cases can cost employers millions. While regulatory investigators may be more likely to focus on back overtime wages and employment taxes, workers who file suit claiming to be employees may concentrate more on benefits. For example, in one of the cases highlighted in the publication, former security contractors who worked in Afghanistan and Iraq are suing Xe Services LLC, successor to security firm Blackwater, for unpaid benefits and $60 million in damages.

Companies that use independent contractors should remain vigilant about using that classification. Start with self-auditing your independent contractor classifications and existing pool of workers in order to ensure you are compliant with state and federal law.

Even if your contractors are properly classified, you may be at risk for benefits suits. Be sure to audit your benefit plan language to limit any exposure for such claims. If your benefits plans do not specifically exclude temporary workers and/or independent contractors from coverage, you could be on the hook for back payments, should your ICs bring suit.

Be particularly mindful if you have contractors and employees performing the same job duties. If you have questions regarding benefits plan language, changing the job duties for workers you have classified as contractors or reclassifying independent contractors as employees, consult counsel.

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