DOL, IRS deal takes misclassification issues 'to a new level'

Employers that improperly label workers as independent contractors or nonemployees may face fines from federal as well as state agencies. That's one of the upshots of a new agreement between the Department of Labor and the Internal Revenue Service.

Employers that misclassify workers typically avoid paying workers' comp and other benefits. The memorandum of understanding allows the agencies to crack down on the practice.

"This agreement takes the partnership between the IRS and the Department of Labor to a new level," said IRS Commissioner Doug Shulman. "In this new phase of our relationship, we will work together more efficiently to address worker misclassification issues and better serve the needs of small businesses and employees."

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In addition to the federal agencies, up to 11 state agency leaders have agreed to participate in the effort. The federal agencies will share information with the states to aggressively pursue the offending employers.

In addition to workers' comp benefits, misclassified employees often lose out on minimum wage, overtime pay, and unemployment compensation. The companies also avoid some federal taxes.

Previously, such employers might be subject to a fine from a state agency for failing to pay proper unemployment insurance payments. Under the new agreements, a Labor Department spokesman said such companies now could face fines from federal agencies for federal wage violations. Also, the IRS could go after the companies for unpaid taxes.

The following nine states have signed agreements with the Labor Department:

Connecticut.
Hawaii.
Maryland.
Massachusetts.
Minnesota.
Missouri.
Montana.
Utah.
Washington.

New York and Illinois have indicated they will sign up soon.

Read more at the WorkersComp Forum homepage.

October 10, 2011

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