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Wage & Hour – Development & Highlights To Highlight Recent and Noteworthy Developments In Cases And Regulations on Wage and Hour Laws That Affect Large and Small Businesses

Agencies Target Independent Contractor Status: The Death Knell of Such Relationships?

Posted in Independent Contractor

On September 19, 2011, the leaders of the U.S. Department of Labor (“DOL”), Internal Revenue Service, and eleven state agencies entered into a “memo of understanding” to work together to “end the practice of misclassifying employees” as independent contractors.  The participating agencies claim that some employers classify their workers as independent contractors, rather than as employees, to avoid paying payroll taxes and required compensation to employees.  The “memo of understanding” will enable the federal and state agencies to share information and coordinate the enforcement of both tax and wage and hour laws.

According to Labor Secretary, Hilda Solis, “Misclassifying employees can result in workers being denied the minimum wage, overtime pay, unemployment insurance, and workers’ compensation benefits.” Secretary Solis further stated, “This makes it harder for low-wage workers to put food on the table and provide for their families.  It means a greater chance of working in unsafe conditioned and not being compensated when hurt on the job.”  The IRS Commissioner Doug Shulman commented that by entering into this agreement, “we will work together more efficiently to address worker misclassification issues, and better serve the needs of small businesses and employees.”

While the press release issued by the DOL discusses the intention of the agencies to work together, it does not provide any detail as to how this objective will be achieved.  Similarly, there is no indication that there are any procedures in place for a coordinated “attack” on misclassification.

Accordingly, it will be interesting to see whether this agreement by the federal and state agencies will have any impact on the prosecution of perceived misclassification.  At the very least, employers should expect the government to scrutinize, and likely dispute, the classification of any worker as an independent contractor.