U.S. Department of Labor, Internal Revenue Service Sign Agreement to Coordinate Efforts Against Employee Misclassification

 

The U.S. Department of Labor (“DOL”) announced today, September 19, 2011, that it, along with seven states and various state agencies, has signed a memorandum of understanding with the U.S. Internal Revenue Service that is expected to facilitate efforts against businesses that misclassify workers as independent contractors or non-employees in order to avoid providing certain employment benefits, such as overtime pay and workers’ compensation.

Florida is not among the signatory states.

A DOL news release on this matter is reprinted below, followed by Associated Press news coverage.  To view these articles, click on the hyperlinks below:

• DOL News Release:  Labor secretary, IRS commissioner sign memorandum of understanding to improve agencies’ coordination on employee misclassification compliance and education
• Associated Press:  Labor Department expands enforcement of wage violations

 

Note:  Colodny Fass Shareholder Maria Elena Abate represents employer clients in the prevention and defense of employment-related litigation, as well as with the navigation of increasingly complex state and federal laws and regulations that affect the workplace by imposing legal obligations and risks on every employer.   Ms. Abate assists corporations in managing compliance issues by minimizing risk, providing counseling on creating an optimal employee culture and efficiently assisting with the handling of audits and related matters.

 

Should you have any comments or questions, please contact Colodny Fass.

 

 

Labor secretary, IRS commissioner sign memorandum of understanding to improve agencies’ coordination on employee misclassification compliance and education

11 state agency leaders also sign, agree to memorandums of understanding

 

WASHINGTON – Secretary of Labor Hilda L. Solis today hosted a ceremony at U.S. Department of Labor headquarters in Washington to sign a memorandum of understanding with the Internal Revenue Service that will improve departmental efforts to end the business practice of misclassifying employees in order to avoid providing employment protections. In addition, labor commissioners and other agency leaders representing seven states signed memorandums of understanding with the department’s Wage and Hour Division and, in some cases, its Employee Benefits Security Administration, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs and Office of the Solicitor. The signatory states are Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington. Secretary Solis also announced agreements for the Wage and Hour Division to enter into memorandums of understanding with the state labor agencies of Hawaii, Illinois and Montana, as well as with New York’s attorney general.

The memorandums of understanding will enable the U.S. Department of Labor to share information and coordinate law enforcement with the IRS and participating states in order to level the playing field for law-abiding employers and ensure that employees receive the protections to which they are entitled under federal and state law.

“We’re here today to sign a series of agreements that together send a coordinated message: We’re standing united to end the practice of misclassifying employees,” said Secretary Solis. “We are taking important steps toward making sure that the American dream is still available for all employees and responsible employers alike.”

“This agreement takes the partnership between the IRS and Department of Labor to a new level,” said IRS Commissioner Doug Shulman. “In this new phase of our relationship, we will work together more efficiently to address worker misclassification issues, and better serve the needs of small businesses and employees.”

Business models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal, unless they are used to evade compliance with federal labor laws – for example, if an employee is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law. In addition, misclassification can create economic pressure for law-abiding business owners.

These memorandums of understanding arose as part of the department’s Misclassification Initiative, which was launched under the auspices of Vice President Biden’s Middle Class Task Force with the goal of preventing, detecting and remedying employee misclassification.

The mission of the U.S. Department of Labor is to foster, promote and develop the welfare of the wage earners, job seekers and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights.

 

 

Labor Department expands enforcement of wage violations

By SAM HANANEL
Associated Press

 

WASHINGTON — The Labor Department is signing agreements to share information with nearly a dozen states and the Internal Revenue Service as it gets more aggressive in its program to crack down on businesses that cheat workers out of their hard-earned wages.

The information will help Labor officials target businesses that improperly label workers as independent contractors or as non-employees to deprive workers of minimum wage and overtime pay. Misclassifying workers also lets companies avoid paying workers compensation, unemployment insurance and federal taxes.

Patricia Smith, the Labor Department’s top lawyer, said sharing information between state and federal agencies could subject businesses to multiple fines.

“There’s more of an incentive to be in compliance because the cost of what we consider to be illegal activity has increased,” Smith said in an interview.

In the past, Smith said, a company might pay a single fine to a state agency for not making proper unemployment insurance payments. Under the new agreements, a state can share the information with the Labor Department, which also can seek fines and penalties for federal wage violations.

The violation also would be reported to the IRS, which can go after the company for unpaid taxes, Smith said.

States that have agreed to work with the Labor Department so far include Connecticut, Hawaii, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington. Labor officials from New York and Illinois plan to sign up in the near future.

Labor Secretary Hilda Solis has made increased enforcement of federal wage-and-hour laws a top priority since she took office in 2009. The department has focused on industries where so-called “wage theft” is considered a problem, including the hotel, restaurant, janitorial, health care and day care industries.

Last month, the agency began targeting large U.S. homebuilders to see if they failed to pay workers the minimum wage or overtime.

“The urgency of addressing this issue has become more pronounced because we’re seeing these illegal business practices used by more and more industries, like restaurants,” said Nancy Leppink, head of the department’s Wage and Hour Division.

Earlier this year, for example, the department recovered over $219,000 in back wages for 44 Boston-area restaurant workers who were misclassified as independent contractors by two restaurants. The restaurants had failed to pay them overtime and also weren’t paying their payroll taxes.

Scott DeFife, a vice president for policy and government affairs at the National Restaurant Association, said his group works closely with members to navigate the “increasingly complex” federal and state rules governing wage and hour issues.

“We support 100 percent compliance with the law,” he said.

Leppink said employers who do follow the law are finding it difficult to compete against those businesses that are misclassifying their workers.

In 2010, the Labor Department collected nearly $4 million in back wages on behalf of about 6,500 employees who had been misclassified, a 400 percent increase over the amount collected in 2008. The department has hired about 300 additional investigators to probe wage theft complaints.

Leppink said getting more referrals from states or the IRS would help the agency increase enforcement efforts.

 

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