Posted by marykeating on September 16, 2010 under Wage and hour issues | 
Yesterday a bill was introduced in both houses of Congress to crack down on worker misclassification.
The law is called the “Fair Playing Field Act of 2010,” and is endorsed by the President. The press release from Senator Kerry’s office is playing the bill up as closing a tax loophole. Indeed, businesses paying their workers appropriately have a competitive disadvantage when other companies are refusing to pay FICA tax, unemployment tax, workers compensation premiums, and fringe benefits. The other side of the coin is that employees have those very protections if they are injured or become unemployed. Self-employed individuals (people classified as independent contractors) are also liable to pay the employer’s half of the FICA tax, called self-employment tax.
The tax loophole sought to be closed gave employers a break on penalties if they were caught misclassifying employees. It also will require more regulations to clarify the line between employee and independent contractor, which is not always clear. Maryland similarly has an initiative aimed specifically at several industries, such as lawn care and construction, that have been found to have a high proportion of companies skirting the law.
Posted by marykeating on April 29, 2010 under Federal wage and hour law, Pending legislation |
I’ve discussed misclassification of employees before. The issue comes up when an employer decides to treat a worker as an independent contractor when the person actually qualifies as an employee. The savings to the employer include worker’s compensation premiums, unemployment insurance premiums, the employer share of the social security and medicare taxes, and, often, the cost of fringe benefits. In addition, an employee has protections under various non-discrimination laws which usually do not apply to independent contractors.
Congress now has before it a new version of The Employee Misclassification Prevention Act. It was introduced last week, and is expected to get a favorable hearing.
The law would add enforcement teeth to the Fair Labor Standards Act. One provision adds a presumption that someone receiving money for the performance of work is an employee, unless the employer has maintained records related to the classification and the hours worked and wages paid. In addition, the misclassified employee will be entitled to doubled liquidated damages for that violation. In other words, the amount recoverable by the misclassified employee could be triple the unpaid or underpaid wages, as is the case in state law.
Maryland is targeting specific industries, such as the landscaping industry, believed to have rampant violations. The new federal bill requires the Department of Labor to engage in targeted audites of industries the department finds to have a frequent incidence of misclassification.
Posted by marykeating on September 4, 2009 under Wage and hour issues |
In a previous post, I commented on the steps Maryland is taking to combat the misclassifications of employees as independent contractors. While the state and federal tests are not identical, the basic tests are the same. If an employer exerts control over the place, manner, and hours of work, the person is likely an employee. Independent contractors often have their own places of business, equipment, and are hired to perform a specific function or job, not put in a certain number or hours.
In the gray areas, though, it may be tough to make the final call. You can read the IRS training manual, a 160-page report that should be able to answer most questions. The Internal Revenue Service has simpler guidelines on its website as well. You may not know, though, that IRS will give an opinion on a specific situation, if asked by the employer or the employee/independent contractor. Exercising this degree of due diligence will negate any accusation of bad faith or exploitation.
One main reason that employers may misclassify a worker as an independent contractor is to avoid paying FICA taxes, which amounts to 7.65% of the compensation. An independent contractor pays that amount as self-employmetn tax. A worker who has been misclassified can file a form with his or her taxes that shifts the responsibility for that 7.65% to the employer. The explanation is here.
