It appears the Department of Labor (DOL) will once again be focusing on worker misclassification in 2013.
Staffing Industry Analysts recently reported that the DOL plans to commission a $1.9 million study to determine if workers have knowledge of their employment classification and the implications of that classification.
When a worker is classified as a 1099 Independent Contractor (IC) rather than a W-2 employee, they are not covered by Unemployment or Workers’ Compensation insurance. They are also deprived of minimum wage and overtime pay and do not have taxes automatically withheld from their pay like they would if they were employees.
Because federal law doesn’t currently require employers to inform workers of how they are classified or why, the DOL suspects that workers “may not be prepared for the consequences of misclassification,” according to the Federal Register. The DOL intends to interview 10,060 workers and 100 executives to gauge workers’ awareness of basic employment laws and the consequences of their classification.
The DOL is soliciting comments on the potential study until March 12. Additional details, including how to submit comments, are available in the Federal Register.
According to the Federal Register, the practice of misclassifying employees as ICs takes $2.7 billion per year of Social Security, Unemployment, and income taxes out of the federal coffers because companies don’t pay the employer portion of taxes on their ICs. This loss of tax revenue is why the DOL has been cracking down on misclassification over the past few years. Since 2009, the DOL has collected $29 million in back wages for more than 29,000 workers who were determined to be misclassified as 1099 ICs rather than W-2 employees.
As always, we urge you to warn your clients about the dangers of worker misclassification. The DOL is not going away, and the Obama administration’s war against misclassification is only going to intensify, especially since more employers may be tempted to classify workers as 1099 ICs to avoid complying with the Patient Protection and Affordable Care Act (PPACA) better known as Obamacare.
If you have clients who are utilizing ICs, you can help by offering to convert their ICs to contractors who are W-2 employees of a contract staffing back-office, such as FoxHire. The back-office assumes all the employment responsibilities, including providing Unemployment and Workers Compensation insurance, paying the employer portion of taxes, and withholding the appropriate taxes from contractor pay checks. That way, your clients can still enjoy the cost savings of having contractors without the legal risks.