Friday, January 18, 2013

New federal worker misclassification study

Buried in the Federal Register on January 11, 2013 is a proposal for the U.S. Department of Labor 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 proposed study defines worker misclassification as “the practice, intended or unintended, of improperly treating a worker who is an ‘employee’ under the applicable law as [being] in a work status other than an employee (i.e., an independent contractor).”

The Department of Labor’s proposal 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.


This new proposed study by the Labor Department appears to be related to the proposed “Right to Know” rule that the Department has included on its Regulatory Agenda.

The Department’s focus on workers’ understanding of their classification as employees or independent contractors, to the virtual exclusion of employers’ misunderstanding of the confusing array of tests for independent contractor status under both federal and state laws, seems to be a profound misapplication of the budgeted funds for the survey. Even the Government Accountability Office has stated that “[t]he tests used to determine whether a worker is an independent contractor or an employee [at the federal level] are complex, subjective, and differ from law to law” (see GAO Report No. 06-656 at 25). The tests used by state regulatory agencies in enforcing state laws are even more diverse than the federal tests, leaving both businesses and employees equally confused.

Most companies with business models that are IC-dependent or simply make use of multiple ICs are aware that they are at risk of IC misclassification liability if they have not properly classified these workers. Recognizing which tests will be applied to the workers in question by the most relevant federal agencies and the applicable state agencies is one of the first steps, using the 48 Factors-Plus™ analysis, in determining where a business falls on the IC Compliance Scale™.

Once a company’s level of compliance is so measured, it can then enhance its IC compliance by restructuring, re-documenting, reclassifying, or redistributing contingent workers, using IC Diagnostics™ as described in our “White Paper” on minimizing IC misclassification liability. Lexology

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