Important Developments in Worker Classification:

Why You Should be Concerned About Your Independent Contractors

Beware.  The employment issue of 2007-2008 may well be worker misclassification enforcement, and everyone seems to be jumping on the bandwagon.

• Last month, Senators Obama, Durbin, Kennedy, and Murray introduced S. 2044, The Independent Contractor Proper Classification Act of 2007.  The goal of the legislation is to improve enforcement of the worker classification laws and to weaken a Section 530 safe harbor that allows some workers to be treated as independent contractors.  The legislation also provides for more coordinated enforcement action between the Department of Labor and the Internal Revenue Service and allows workers to challenge their employment classification without fear of employer retaliation.  The legislation would require the federal agencies to provide information on worker classification to state enforcement agencies, further ramping up the consequences for an employer who misclassifies workers. 

• On September 5, 2007, New York Governor Eliot Spitzer signed an executive order creating a Joint Enforcement Task Force comprised of various state and local agencies to attack the problem of worker misclassification. 

• In response to a General Accounting Office study, the U.S. Department of Labor is studying ways to more effectively refer cases of employee misclassification to other federal and state enforcement agencies.

• Most recently, on October 26, 2007, Senators Obama and Durbin wrote to U.S. Treasury Secretary Paulson calling for a full investigation into Blackwater USA’s alleged practice of classifying many of its personnel as independent contractors instead of employees.

Accordingly, now is a good time to re-examine whether any workers classified as independent contractors qualify for that status under federal and state labor laws and tax laws. The stakes for a company found to have misclassified a worker as an independent contractor have always been high; but increased and coordinated enforcement efforts mean that a challenge by one agency may result in many other federal and state agencies being notified of the potential worker misclassification.  Misclassification of workers as independent contractors can expose an employer to many claims, including state and federal payroll tax liability, withholding tax liability, workers compensation liability, overtime pay claim liability, as well as claims relating to the employer’s retirement plans and welfare plans. 

Stay tuned.  It’s likely that the issue of worker classification will stay in the spotlight. 

If you have any questions regarding this alert or other employee benefits/employment law issues, please contact Nancy Brower at 704.342.5275 or ncbrower@poynerspruill.com or Susie Gibbons at 919.783.2813 or sgibbons@poynerspruill.com.