U.S. Sen. Sherrod Brown (D-Ohio) is joining the U.S. Department of Labor and the IRS in going after employers that improperly classify workers as independent contractors. Brown is tackling the issue from the legislative side, co-sponsoring the Employee Misclassification Prevention Act (EMPA).
The bill would target employers that misclassify their employees as independent contractors, increasing federal scrutiny of employers and boosting fines for those found to have misclassified employees as independent contractors.
The Obama administration backs the move, claiming that EMPA would raise $7 billion in federal tax revenue over the next 10 years.
Ohio State Attorney General Richard Cordray is a supporter, too. He estimates the state loses $160 million per year due to employee misclassification. The practice affects local tax bases as well.
Under the proposal, the federal government would:
- Increase penalties for employers that misclassify employees and violate their overtime and minimum-wage rights
- Require employers to notify workers of their classification as an employee or nonemployee
- Create a web site to inform workers about their federal and state wage-and-hour rights
- Provide protection to workers who are discriminated against because they have sought to be accurately classified
- Require states to conduct audits to identify employers that misclassify workers and require the DOL to monitor states’ efforts to identify misclassification
- Direct states to strengthen their own penalties for worker misclassification
- Permit the DOL and the IRS to refer incidents of misclassification to one another
- Direct the DOL to perform targeted audits focusing on industries that frequently misclassify employees.
Note: With all levels of government facing growing deficits, employee misclassification is just the type of high-profile, politically popular move politicians love.
Advice: Employers should review all independent contractor relationships to ensure the contractors truly are independent. The DOL and IRS will look at how much control the employer exerts over the contractor and whether the contractor is truly independent enough to work for other clients as well.