A bill introduced in the Senate last week takes aim at employers who mistakenly classify employees as independent contractors. The Payroll Fraud Prevention Act (S. 770) introduced by Senators Sherrod Brown (D-OH), Tom Harkin (D-IA), and Richard Blumenthal (D-CT), would impose new reporting requirements on employers, increase penalties for classification violations, and establish new protections for workers who believe they have been misclassified.
Among other things, the bill would:
- Require employers to keep records that reflect the accurate status of each worker as an employee or non-employee and clarify that employers violate the Fair Labor Standards Act (FLSA) when they misclassify workers.
- Require employers to notify workers of their classification as an employee or non-employee.
- Increase penalties imposed on employers who misclassify their employees as independent contractors and are found to have violated employees' overtime or minimum wage rights.
- Create a website to inform workers about their federal and state wage and hour rights.
- Provide protections to workers who are fired or otherwise discriminated against as a result of their efforts to be reclassified as employees.
- Direct the DOL’s Wage and Hour Division (WHD) to conduct targeted audits of certain industries with frequent incidences of misclassifying workers.
In a press release, Sen. Brown stated: “Intentionally treating workers as subcontractors when they really are employees is payroll fraud: it cheats workers, taxpayers, and other businesses that play by the rules,” adding: “By cracking down on payroll fraud, this bill will protect workers and level the playing field for all employers.”
In June 2010, the Senate Committee on Health, Education, Labor and Pensions held a hearing to address the misclassification issue.
In addition to legislative efforts to curb worker misclassification, various federal agencies are involved in an initiative to target this practice. For example, as part of the Department of Labor’s (DOL) budget plan and regulatory agenda, the department intends to add 107 full-time equivalent employees to support the Administration's multi-agency initiative to detect and deter the inappropriate misclassification of employees as independent contractors and to strengthen and coordinate federal and state efforts to enforce labor violations arising from misclassification. In addition, the WHD intends to develop a proposed rule that would update the recordkeeping regulation issued under the FLSA to “promote greater levels of compliance by employers, to enhance awareness among workers of their status as employees or independent contractors and employee rights and entitlements to minimum wage and overtime pay, and to facilitate DOL enforcement.” More recently, the budget deal pending in Congress would allocate at least $21,332,000 to the Secretary of Labor “for the purposes of program evaluation, initiatives related to the identification and prevention of worker misclassification, and other worker protection activities.”
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