On November 12, 2013, Senator Bob Casey introduced a bill in the U.S. Senate entitled the “Payroll Fraud Prevention Act of 2013.” The act is aimed at reducing the misclassification of employees as independent contractors.

If the act becomes law, it would amend the Federal Fair Labor Standards Act to cover a group of individuals known as “non-employees.” The act would require all employers, even those that do not use independent contractors, to issue a notice for both “non-employees” and “employees.” The required notice must tell individuals how they are currently classified; provide contact information for a U.S. Department of Labor (USDOL) website; and tell individuals they should be in contact with the USDOL if they believe that they have been misclassified or have any questions. Employers, who do not abide by the act and give the required notices, or who do not provide them by the deadline, will face severe penalties. The act provides that any covered individual who is required to receive the notice but does not receive it within the time required, will be presumed to be an employee. The employer will only be entitled to rebut the presumption of employee status through clear and convincing evidence that the individual is not an employee. As if this presumption is not enough of a deterrent, the act further provides a civil penalty, for each employee or other individual for whom there is a violation, of an amount not to exceed $1,100.00, or for repeated or willful violations, not to exceed $5,000.00.

Even if the act does not become law, mischaracterization of employees as independent contractors can result in significant legal liability to your company. The IRS and the USDOL have made worker misclassification audits and enforcement a point of emphasis. It is also a high priority in North Carolina.

Employers should become familiar with the criteria for distinguishing between employees and independent contractors and carefully analyze the relationships they have with individuals before labeling them as independent contractors. Employers may even want to conduct periodic audits to ensure that they have not incorrectly misclassified an employee as an independent contractor. When in doubt, employers should not hesitate to reach out to their employment counsel for advice and assistance in making classifications.

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