Employers constantly try to avoid paying employment taxes, overtime, and benefits to workers by calling them independent contractors.
If you are one of them, you better take a close look at this practice. The U.S. Department of Labor (DOL) has made it a priority in enforcement now to target employers who have misclassified employees as independent contractors. In the past several years, DOL has hired 2,000 new investigators, who are routinely tasked with reviewing whether employers have misclassified employees as independent contractors.
Five Examples of Enforcement Action Results
Here are 5 examples of the results of DOL enforcements over the last couple of years:
- Jan. 29, 2015—Specialty Painting & Wall Covering Inc. and M&S Enterprise in Texas paid more than $108,000 in overtime back wages after a DOL investigation found that some workers were misclassified as independent contractors.
- May 19, 2014—Paul Johnson Drywall Inc. in Prescott, Ariz., agreed to pay $600,000 in back wages, damages and penalties following the misclassification of workers as independent contractors.
- May 9, 2013—The DOL recovered more than $1 million in back wages and damages for 196 workers of a Kentucky-based cable installer, Bowlin Group LLC and Bowlin Services LLC, who were misclassified as independent contractors.
- Feb. 12, 2013—A federal judge with the U.S. District Court for the Eastern District of Pennsylvania ordered kgb USA Inc., the world’s largest independent provider of directory assistance, headquartered in Bethlehem, Pa., to pay $1.3 million in minimum-wage compensation to 14,568 workers following the company’s misclassification of the employees as independent contractors.
- April 26, 2012—Hawkins Tree and Landscaping in Minnesota entered a consent judgment of back pay and liquidated damages for $478,000 to 57 current and former laborers, drivers, crew leaders and foremen who were misclassified as independent contractors and were not paid overtime. The company and its owners also agreed to pay $22,000 in civil penalties.
Employers Need to Review Classification of Any Workers as Independent Contractors
Employers should review whether any individual it has performing work for it is truly an independent contractor. This is a very difficult test to meet and few workers will meet it.
Five Key Factors DOL Looks At
- Whether the individual is compensated other than on a per-project basis. If it is pay per hour, DOL will be very suspect.
- Whether the employer grants the worker paid vacation or sick leave.
- Whether the employer reimburses the worker for business expenses.
- Whether the worker is free to perform work for others or himself. If an employer requires a noncompete agreement, the classification probably will fall.
- How long-term is the relationship. The longer it continues, the more likely DOL will consider the worker an employee.
So What Do You Do If You Determine You Have Misclassified Employees
If you decide that you misclassified employees as independent contractors, how you proceed can be really tricky. The mere act of reclassifying a worker may be a red flag to him or her that they may be due something they were not given previously. They may go to DOL or a private attorney to look into their rights. You also may be assessed back employment taxes, penalties, and interest. There is a Voluntary Classification Settlement Program (VCSP) available in some instances with the IRS to address the taxes, but there are limitations to your ability to participate in the VCSP and the risks of DOL-related liability still remain.
If you reach this stage in your review, you really should consult with competent employment counsel to assess how you handle the reclassification. Proceed with caution!!
Let me know if you think this might apply to you!!
Contact Adair Buckner, Attorney At Law at email@example.com or 806-220-0150