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Freelancer or Employee? The $14M Question.

3.12.14

Each year, federal and state governments increase their efforts to sniff-out companies that improperly classify workers as independent contractors.  It looks like the trend continues.

About a week ago, the President released his 2015 fiscal year budget, which explicitly states that his Administration plans to “detect and deter” the misclassification of workers as independent contractors. Specifically, the budget reads:

“When employees are misclassified as independent contractors, they are deprived of the benefits and protections to which they are legally entitled, such as minimum wage, overtime, unemployment insurance, and anti-dis­crimination protections… The Budget includes nearly $14 million to combat misclassification, in­cluding $10 million for grants to States to identify misclassification and recover unpaid taxes and $4 million for personnel at WHD (Wage & Hour Division) to investigate misclassification.”

On top of that, Departments of Labor in 15 states now have memorandums of understanding in place with the US Labor Department to “coordinate investigations and other enforcement activities” and exchange information to reduce misclassification of employees as independent contractors.  Those states include: California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah, and Washington.

So what’s your organization’s best practice for compliance? Unfortunately, to our knowledge, “this is how we’ve always done it” hasn’t yet been added to the government’s list of acceptable answers. So what is an employer to do?

You could read through the tons upon tons of material published on this subject.  Warning: it’s not as cut-and-dry as you’d think.  This option could also be repurposed as a non-addictive sleep aid.

Or, you could seek help on navigating this confusing subject.  Explore online tools from reputable firms, such as PayReel’s Self Audit, to help gauge whether or not you should be concerned with your company’s practices.

If the results of your research aren’t ideal, consider engaging a qualified partner who has extensive experience classifying workers in your specific industry.

Because the classification process focuses heavily on the relationship between client/employer and worker, it is important that your provider understands the nuances of your work to make the best recommendation for both parties.

This issue is certainly not going away, and it’s in everyone’s best interest for companies to engage the right resources and proceed according to the law.

Besides, think of all the other good things Uncle Sam could do with that $14M.

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