Misclassifying a worker
as an independent contractor instead of an employee is creating potentially
greater problems for business in 2014. And it may well prove to be a banner
year for the IRS, the U.S. Department of Labor and the EEOC, which have all
articulated their aggressive pursuit of misclassification claims against
employers this year.
I have warned about the
danger of misclassifying workers as independent contractors in the past, and the
penalties imposed for doing so. This year, with an increase in the minimum wage
in NY to $8.00 per hour, the implementation of the Affordable Care
Act (ObamaCare) and certain amendments to the Americans with
Disabilities Act (ADA), the stakes are even higher.
In addition, the U.S.
Senate is introducing a bill in Congress (the Payroll Fraud and Prevention Act)
to impose more requirements and penalties for misclassification. Under the
new law, among other things, an employer will be required to give written notice
to each worker that he/she is considered a non-employee. If wrongly classified,
and the result is a wage underpayment, then the additional amounts already
imposed under the Fair Labor Standards Act as a liquidated penalty for violation
will be doubled. The law will
also allow the Department of Labor to target certain industries with
"frequent incidence of misclassifying employees...." For example, the
construction industry and the restaurant industry.
What makes it difficult
for businesses to comply with the classification rules is that each government
agency has a different definition and a different test for making the
determination. Therefore, employers need to make sure they fit all of the
definitions.
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