Misclassifying Workers Can Trigger Two Penalties
Employers are facing increased scrutiny by the Department of Labor, the and state regulators over possible misclassification employees as independent contractors or freelance workers. A DOL memo states that the agency believes many knowingly misclassify workers “as a means to cut costs and avoid compliance with labor laws.”
Misclassifying workers can expose to claims for back pay, taxes and hefty fines. In addition, the may be subject to related to the Act, because the number misclassified workers is likely to cause the to have failed to to a sufficient number their employees.
For example, in 2016 the will require to to at least 95% their – employees. If the DOL reclassified a enough number 1099 workers as employees that the falls below the 95% figure, the may be subject to $2,000 – worker.
The Fair Labor Standards Act uses a broad definition that is based the nature the work relationship, looking at how economically the worker is the . It starts with the assumption that “most workers are employees,” which essentially puts the burden on the to demonstrate that this is not the case.
The DOL memo notes that misclassifying employees can deny them important workplace right and protections, including overtime pay, unemployment and workers’ compensation. It also can results in lower revenues for government, and can put who properly classify their workers at a competitive disadvantage.
Accordingly, the DOL has entered into agreements with the and twenty-five state agencies in a “multi-pronged approach” to combat the misclassification problem (such enforcement efforts resulted in the recovery more than $79 million in back pay for more than 109,000 workers in 2014).
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