Labor Department Cracking Down on Employee Misclassifications

Recently, the U.S. Department of Labor awarded $10.2 million to 19 states to ramp up their enforcement activities “to implement or improve worker misclassification detection and enforcement initiatives in unemployment insurance programs.”

Specifically, the department is searching for businesses that misclassify workers as contractors instead of W-2 employees. The agency is losing out on millions of dollars each year in unpaid taxes, and they intend to find as much of it as possible.

Here are the states receiving the extra funds to increase their enforcement: California, New Mexico, Delaware, New York, Florida, Oregon, Hawaii, South Dakota, Idaho, Tennessee, Indiana, Texas, Maryland, Utah, Massachusetts, Vermont, New Hampshire, Wisconsin and New Jersey.

Questions you should be asking to stay compliant

This does not mean others states aren’t cracking down – but these states are increasing their enforcement.

This is a common topic that has been written about quite a bit, but it remains as big an issue as ever.

Some employers simply don’t know the rules, but others are knowingly misclassifying employees to avoid taxes and insurance that comes along with W-2 employees. Unfortunately the penalties are the same whether you meant to break the law or not, and the penalties are severe.

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Interested in staying out of trouble with the Department of Labor? Here are a couple quick questions to ask yourself. If the answer is yes to any of these your worker is probably an employee, not a contractor.

  • Behavioral — Does the company control or have the right to control what the worker does and how the worker does his or her job?
  • Financial — Are the business aspects of the worker’s job controlled by the company? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  • Type of relationship — Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

If you’re still on the fence about whether your worker is an independent contractor or employee, more information can be found on the IRS website.

This was originally published on the Genesis HR Solutions blog.

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