U.S. Department of Labor Increasing Independent Contractor Misclassification Efforts

1/31/2013 | Construction Blog

The Wage and Hour Division of the U.S. Department of Labor is increasing its efforts to pursue the misclassification of independent contractors under the auspices of Vice President Joe Biden’s Middle Class Task Force. Calling it a serious problem “for affected employees, employers, and to the entire economy”, the efforts are designed to address the improper designation of employees in some other manner.

Misclassification of employees impacts workers by preventing protection of wage and hour law, family leave laws, workers’ compensation and unemployment laws, and other protections according to DOL. The federal government also sees the misclassification as a drain on revenue for the government by depriving it of valuable Social Security, Medicare, unemployment, and workers’ compensation insurance funds. It estimates that the government has lost approximately $2.7 billion a year as a result. They also cite what the Department calls an unfair competitive advantage resulting from the lower administrative costs associated with misclassifying workers.

A heavy investment is being made in this effort, as the 2013 budget includes $14 million to put towards this issue. The Department has also entered into Memoranda of Understanding with various other federal agencies and states to share information as part of their coordinated enforcement efforts. This may mean increased enforcement efforts in our region, including in Pennsylvania where legislation went into effect in the last year to clamp down on such misclassification.

Tests on how an employee is classified can be tricky. Different agencies and states have different standards, and courts even offer other tests. The central theme in most of the tests, however, is control. While a generalization for illustration purposes only, if you have a certain amount of control over the worker that worker is deemed an employee. The less control one exhibits over the worker and how the worker performs his or her job, the less likely the worker is an employee.

Given the current political climate and budget gaps, it is not unreasonable to conclude that these types of enforcement actions will become more prevalent in the next 2-3 years.