Written by Jessica Catlow
If one thing was made clear in a recent seminar sponsored by BNA that included panelists who are former U.S. Department of Labor officials, the enforcement of labor laws as they relate to the classification of service providers as employees or independent contractors is on the rise – as could be expected when both the federal government and states are starved for revenue. Some states, such as New York, have created special tasks forces for the specific purpose of conducting audits and bringing actions against employers who improperly classify employees as independent contractors. At least nine states have enacted statutes directed at worker misclassification, and many others have considered such legislation. In addition, the U.S. Department of Labor is contemplating a new rule that would require employers to notify employees of their status under federal wage and hour law, and may require employers to provide the same information to service providers the employer classifies as independent contractors.
Improperly classifying employees as independent contractors can lead to liability and penalties for failure to withhold taxes, required payroll deductions, and workers’ compensation and unemployment compensation insurance contributions. In addition, independent contractors may have claims against employers for benefits under benefit plans offered to employees. In light of the stepped-up scrutiny and enforcement, it is imperative that employers review their service provider classifications. We also recommend that such a review be conducted at least once a year to ensure that any change in the independent contractor’s responsibilities does not require a re-classification. Employers should be aware that the longer an individual performs services as an independent contractor, the more likely they will be considered employees, especially if the work being done is similar to the work done by employees and/or relates to the core operations of the employer.