The U.S. Department of Labor (DOL) is set to conduct a study to “better understand employees’ experience with worker misclassification” by “measur[ing] workers’ knowledge about their current job classification, and their knowledge about the rights and benefits associated with their job status.” The study will primarily focus on workers’ knowledge about misclassification with 10,060 workers to be interviewed. In contrast, only 100 executives will be surveyed of which only 20 will be interviewed.
The study is part of the DOL’s renewed focus on cracking down on employee misclassification, a practice that leaves workers on the hook for many expenses and gives employers an unfair advantage against those abiding by the law. The proposal states,
The Department of Labor’s proposal also notes that misclassification results in a loss in overall unemployment insurance revenue due to underreporting of at least $200 million dollars annually, as well as unpaid revenues to the federal government of more than $2.7 billion dollars per year in unpaid Social Security, unemployment insurance, and income tax. The proposal notes that a study conducted for the Labor Department in 2000 found that 10 to 30 percent of businesses audited for state unemployment insurance had one or more of its employees misclassified as independent contractors, and that, since 2009, Wage and Hour investigators have collected over $29 million in back wages for over 29,000 employees who were not paid in compliance with federal law because they were misclassified as independent contractors.
The proposed study is just one initative of a multi-level plan the DOL will use to combat misclassification in 2013. Other initiatives include:
• A “Right to Know” rule-making initiative included in the Department’s Regulatory Agenda in 2010 and re-issued on December 21, 2012 that would update the recordkeeping regulations under the federal Fair Labor Standards Act “in order to enhance the transparency and disclosure to workers of their status as the employer’s employee or some other status, such as an independent contractor.”
• A “Misclassification Initiative” to coordinate enforcement and information sharing with state workforce agencies. To date, 13 states have signed Memorandums of Understanding with the U.S. Department of Labor: California, Colorado, Connecticut, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah, and Washington. New York has reportedly agreed to enter into its own Memorandum of Understanding with the Wage Hour Division of the Labor Department.
• A joint undertaking with the Internal Revenue Service, pursuant to a Memorandum of Understanding with the IRS signed on September 19, 2011. The agencies have committed to coordinate their law enforcement efforts aimed at businesses that misclassify employees as ICs.
Comments are being accepted until March 12th on “whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; the validity of the methodology and assumptions used; and the quality, utility, and clarity of the information to be collected.”
Conceptually, measuring worker knowledge of misclassification is a great way to further the battle against unscrupulous employers. It is guaranteed that many independent contractors are entirely unaware that they are being mistreated.
Employers who knowingly misclassify employees as independent contractors have the ability to reclassify their workforce without IRS penalty before June 30th.
