1099 Risk Blog

House Bill Would Penalize Misclassification

The flurry of introduced legislation intended to address employee misclassification continues: A new bill introduced in the House by Democratic Representatives Woolsey and Andrews would penalize employers who improperly classify their employees as contractors to save on payroll taxes, benefits, and other costs.

The Employee Misclassification Prevention Act would amend the Fair Labor Standards Act to clarify language around employee -- contractor classification [i.e., whether individuals should be paid as a W2 or a 1099], increase reporting and communications between the Department of Labor and the IRS, increase reporting and communications between the State and Federal levels of regulation, penalize employers who misclassify employees as contractors, targeting audits at industries and employers suspects of being offenders.

According to Occupational Health & Safety Online:

"Full-time employees who are misclassified as independent contractors lose workers' compensation coverage, minimum wage and overtime protections, and family and medical leave. The Government Accountability Office says more than 10 million workers in the U.S. are classified as independent contractors, and a Massachusetts study found 11.4 percent of that state's construction workers had been misclassified as independent contractors between 2001 and 2003, according to the two legislators. The bill, the Employee Misclassification Prevention Act of 2008 (H.R. 6111), would impose penalties on employers who misclassify employees as independent contractors; make employers keep records on and notify workers of their employment or independent contractor classification and their right to challenge that classification; require state unemployment insurance agencies to conduct audits to identify employers who are misclassifying employees; monitor states' effectiveness in identifying employers who misclassify employees; allow the U.S. Department of Labor and the Internal Revenue Service to share information on cases where employers misclassify workers; and require DOL to perform targeted audits focusing on employers in industries that frequently misclassify employees." ARTICLE 

The bill specifically calls for dedicated audits:

"The Secretary of Labor shall ensure that at least 25 percent of the audits of employers subject to the Fair Labor Standards Act that are conducted by the Wage and Hour Division of the Department of Labor are focused on potential violations of the record-keeping requirements of section 11(c) of such Act (29 U.S.C. 211(c)) (as amended by this Act). Such Division shall focus such audits on employers in industries with frequent incidence of misclassifying employees as non-employees, as determined by the Secretary."

Read the FULL TEXT of The Employee Misclassification Prevention Act here.