Of late, worker misclassification has been and will likely continue to be a "hot" topic of discussion. Worker misclassification occurs primarily in one of two situations: (1) an employer incorrectly classifies an employee as exempt/non-exempt; or (2) an employer incorrectly classifies an individual as an independent contractor. Classifying a worker seems pretty straightforward - so what's the issue right? The problem is that there a financial incentive for employers not to classify workers correctly. In particular, worker misclassification essentially provides employers with the ability not to pay overtime, employment taxes, insurance and other costs associated with employee benefits, thereby transferring the tax burden and other risks to the employee.
Worker misclassification is a nationwide problem and it is estimated that the issue of misclassification has created a $1.2 Billion wage gap. Given that figure, it is no wonder so many federal and state government agencies have, for years, focused on mitigating worker misclassification. In August of last year, the IRS made clear their intention to devote major audit resources to investigating worker misclassification. In August of this year, the 9th Circuit Court of Appeals dealt a serious blow to FedEx when it concluded that its drivers, whom FedEx had long treated as Independent Contractors, were in fact employees.
While worker misclassification has long been at the forefront of the U.S. Department of Labor's (DOL) initiatives, on September 15 of this year, the DOL announced an award of $10.2 Million in federal grants to 19 states for the implementation or improvement of worker misclassification detection and enforcement programs (click here to see the DOL press release). For our Hawaii clients, you should note that Hawaii was one of the 19 states that received a grant (Hawaii received $500,000). This is the first time the DOL has awarded such a grant to states and the announcement came shortly after President Obama signed the Fair Pay and Safe Workplaces Executive Order (EO).
The EO applies to federal contractors and requires federal contractors to disclose labor law violations (including worker misclassification) for the past three (3) years before being awarded a government contract. Federal contractors will also be required to collect such information on their subcontractors. In addition, the EO gives agencies guidance on how to consider labor law violations before awarding (or not awarding) a contract. According to the EO Fact Sheet, the EO is intended to: (1) hold corporations accountable; (2) crack down on repeat violators by not awarding them contracts; (3) promote efficient federal contracting by reducing the risk of poor performance (the argument is that companies with workplace violations are more likely to encounter performance problems); (4) protect responsible contractors; and (5) focus on helping companies improve by giving them opportunities to come into compliance.
Penalties for worker misclassification have always included a financial component (payment for taxes, overtime, etc.), but with this Executive Order, and the potential for government contractors to lose or not receive a government contract, the consequences for worker misclassification can be fatal. We regularly work with our clients to: (1) put procedures in place that help to make sure new workers are correctly classified; and (2) conduct periodic audits of their workforce to ensure compliance with all worker classification laws and regulations. For more information about worker classification issues as well as ways to ensure that your company is compliant, please contact us today at (808) 369.9710 or through our Contact link.
While worker misclassification has long been at the forefront of the U.S. Department of Labor's (DOL) initiatives, on September 15 of this year, the DOL announced an award of $10.2 Million in federal grants to 19 states for the implementation or improvement of worker misclassification detection and enforcement programs (click here to see the DOL press release). For our Hawaii clients, you should note that Hawaii was one of the 19 states that received a grant (Hawaii received $500,000). This is the first time the DOL has awarded such a grant to states and the announcement came shortly after President Obama signed the Fair Pay and Safe Workplaces Executive Order (EO).
The EO applies to federal contractors and requires federal contractors to disclose labor law violations (including worker misclassification) for the past three (3) years before being awarded a government contract. Federal contractors will also be required to collect such information on their subcontractors. In addition, the EO gives agencies guidance on how to consider labor law violations before awarding (or not awarding) a contract. According to the EO Fact Sheet, the EO is intended to: (1) hold corporations accountable; (2) crack down on repeat violators by not awarding them contracts; (3) promote efficient federal contracting by reducing the risk of poor performance (the argument is that companies with workplace violations are more likely to encounter performance problems); (4) protect responsible contractors; and (5) focus on helping companies improve by giving them opportunities to come into compliance.
Penalties for worker misclassification have always included a financial component (payment for taxes, overtime, etc.), but with this Executive Order, and the potential for government contractors to lose or not receive a government contract, the consequences for worker misclassification can be fatal. We regularly work with our clients to: (1) put procedures in place that help to make sure new workers are correctly classified; and (2) conduct periodic audits of their workforce to ensure compliance with all worker classification laws and regulations. For more information about worker classification issues as well as ways to ensure that your company is compliant, please contact us today at (808) 369.9710 or through our Contact link.
