Congress addresses misclassification of employees

Employers could face stiff penalties for erroneously classifying employees as independent contractors under legislation proposed in Congress. S. 770 also aims to eliminate payroll fraud and protect workers' rights -- including those under state workers' comp laws.

Democratic Sens. Sherrod Brown, Ohio, Tom Harkin, Iowa, and Richard Blumenthal, Conn., introduced the Payroll Fraud Prevention Act in mid-April. It is similar to one introduced in the previous Congress but has fewer reporting requirements for employers.

The bill would amend the Fair Labor Standards Act and require employers to provide a written notice to all workers informing them as to whether each is an employee or nonemployee. For each nonemployee, the employer must provide a notice stating the following: "Your rights to wage, hour, and other labor protections depend upon your proper classification as an employee or non-employee. If you have any questions or concerns about how you have been classified or suspect that you may have been misclassified, contact the U.S. Department of Labor."

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Employers must maintain copies of the notices. The legislation establishes a civil penalty of up to $1,100 for each misclassified worker while repeat violations would generate penalties of up to $5,000 per worker.

Additionally, the legislation requires the creation of a website to inform workers about their federal and state rights and directs the Department of Labor's Wage and Hour Division to conduct targeted audits of certain industries with frequent incidences of misclassifying workers.

In announcing the legislation, Brown pointed to a study in Ohio that estimated losses at $160 million annually in taxes due to alleged misclassification. As part of the effort to crack down on employers who misclassify workers, the DOL hopes to add more than 100 employees to support the Obama Administration's multi-agency initiative to detect and deter misclassification and strengthen and coordinate federal and state efforts to enforce labor violations arising from misclassification.

Read more at the WorkersComp Forum homepage.

May 5, 2011

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