Over the past several years, the U.S. Department of Labor has worked with state governments to enact written agreements to reduce worker misclassification as independent contractors; The Commonwealth of Massachusetts entered into an agreement in 2011, which was renewed in November of 2014. On July 15, in response to increased complaints from workers alleging misclassification, U.S. Department of Labor Administrator David Weil issued his interpretation of the Fair Labor Standards Act’s “Suffer or Permit” Standard with respect to the topic, asserting renewed efforts to further reduce misclassification and penalize companies intentionally misclassifying employees. According to Mr. Weil:
When employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation. Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers. Although independent contracting relationships can be advantageous for workers and businesses, some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor law.[i]
In Massachusetts, workers must pass the following criteria in order to be classified as independent contractors:
So, what can you do to make sure you are classifying your workforce correctly? Here are several questions to consider[ii]:
Make no mistake: the Department of Labor is cracking down on employee misclassification. The DOL has a strong history of holding employers accountable for back wages to misclassified employees, in addition to levying harsh penalties and fines. Beyond legal ramifications, misclassifying employees as independent contractors can lead to astronomical additional premium charges following workers’ compensation audits.
The clock is ticking on employers who have managed to evade penalties for misclassifying employees as independent contractors. In conclusion, properly classifying your workforce up front saves you from debilitating legal and financial ramifications in the future.
[i] Weil, D. (2015). The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors (2015-1). Washington, DC: Department of Labor. Retrieved from http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.pdf.
[ii] O’Malley, S. (2015). Status Update: 6 DOL Guidelines for Independent Contractor Classification. Retrieved from: http://www.constructiondive.com/news/status-update-6-dol-guidelines-for-independent-contractor-classification/402572/.