Misclassification: DOL and IRS Declare War
Wednesday, April 11, 2012 3:00 AM
by Steve Bruce
Misclassification—calling individuals "independent contractors” or “volunteers” who properly should be employees—is a burgeoning legal battleground for HR managers. A recent 30-million-dollar suit on behalf of newspaper carriers is a good example of the stakes involved, says attorney Christine V. Walters.
Walters, who is a consultant with the FiveL Company in Westminster, MD, offered her tips at SHRM’s Employment Law and Legislative Conference, held recently in Washington, DC.
As one indicator of what’s in store for employers, says Walters, note that the Congressional budget includes $14 million to combat misclassification, including $10 million for grants to states to identify misclassification and recover unpaid taxes and $4 million for personnel at the DOL Wage and Hour Division to investigate misclassification.
Another factor that means more scrutiny is memoranda of understanding (MOUs) between DOL, IRS, and some states that the various agencies will share information, says Walters.
Why Is Misclassification Such an Issue?
A lot of entities—from DOL and IRS to state agencies for taxes, workers’ compensation, and unemployment—believe they are losing money to misclassification, and they want to get it back. For example:
•Federal and state income tax withholding
•Social Security taxes
•Medicare taxes
•Unemployment
•Workers’ comp
There are also concerns around:
•Application of minimum wage and OT
•Discrimination
•Health care benefits
•Paid and unpaid leave benefits
Walters focused first on two areas where she sees many mistakes in classification, unpaid summer interns and “volunteers.”
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So What Are the Rules for Independent Contractors?
It depends! says Walters. There are at least three different guides: EEOC, IRS, and the Supreme Court.
According to the EEOC, the indicators that a worker is an employee—not an independent contractor—are:
•The work does not require a high level of skill or expertise.
•The agency or employer, not the worker, furnishes the tools, materials, and equipment.
•The work is performed on the premises of the agency or employer.
•The worker and the agency or employer have a continuing relationship.
•The agency or employer has the right to assign additional projects to the worker.
•The agency or employer sets the hours of work and the length of the job.
•The worker is paid by the hour, week, or month instead of a set fee for performing a particular job.
•The worker has no role in hiring and paying assistants.
•The work is part of the regular business of the employer.
•The worker does not have a distinct occupation or business of his or her own.
•The agency or employer provides the worker with benefits such as insurance, leave, or workers' compensation.
•The agency or employer withholds federal, state, or social security taxes on behalf of the worker or should do so.
•The agency or employer can discharge the worker.
•The worker and either the agency or employer believe they are creating an employer/employee relationship.
In tomorrow’s Advisor, IRS and Supreme Court guidelines, plus an introduction to the “50x50,” a unique guide to fifty employment laws in fifty states.
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+Of course the solution to this is to use a firm such as ours to do "third party" outsourcing for that same "consultant" protecting you.
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