Signaling an intent to crack down on businesses that improperly label workers as independent contractors or non-employees, news media sources recently have reported that the United States Department of Labor (DOL) is signing agreements to share information with the Internal Revenue Service (IRS) and with individual states. Information received from the IRS and/or cooperating states will help the DOL identify businesses that misclassify their employees in this manner, and thereby avoid paying the minimum wage, overtime pay, workers’ compensation, unemployment insurance, and/or state and federal taxes.
Patricia Smith, the top lawyer for the DOL, has been reported as saying that this sharing of information could subject businesses to multiple fines. For example, where in the past a company might have paid a single fine to a state agency for not making unemployment insurance payments, under the new agreements a state can share information with the DOL which then can seek fines and penalties for federal wage violations. Violations can also be reported to the IRS, which can pursue payment of unpaid taxes from violating companies.
These recent events evidence the DOL’s continued commitment to increased enforcement of federal wage and hour laws. In 2010, the DOL collected nearly $4 million in back wages on behalf of approximately 6,500 employees who had been misclassified. This amount represented an estimated 400 percent increase over the amount collected in 2008. To assist with wage-related complaints, the DOL has hired nearly 300 additional investigators.
Although all industries are subject to the DOL’s increased enforcement efforts, the DOL’s focus has been on industries where so-called “wage theft” is considered to be a problem. This list includes the hotel, restaurant, janitorial, health care and day care industries. Recently, the agency also has begun targeting large U.S. homebuilders.
States that have agreed to work with the DOL presently include Connecticut, Hawaii, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington, and it is anticipated that New York and Illinois will come on board soon. Although North Carolina is not included in the list so far, employers in the state must be mindful of the DOL’s heightened enforcement activities and the need to proactively manage the classification of their workers. Employers must take care to properly classify their workers in order to be on firm ground with respect to those designated as independent contractors or non-employees. The attorneys at Poyner Spruill have experience with these issues and are happy to assist with any questions or concerns.