Congress Again Mulls Employee/Contractor Classification

November 4, 2011

Introduced into Congress yet again is the new and improved Employee Misclassification Prevention Act.  The bill is intended to punish employers who misclassify employees as independent contractors.  The proposed legislation would impose the following requirements on employers:

• Require every employer, within six months of enactment, to provide written notices to every worker who performs labor or services for it informing them whether they have been classified as an employee or “non-employee” (independent contractor) – and why they have been classified as such
• Mandate that employers direct all workers to a Department of Labor (DOL) website, which would inform employees of their rights and encourage them to contact the DOL if they suspect they’ve been misclassified
• Require employers to keep records of the hours, work and wages of employees and “non-employees” for the purpose of backing up workers’ classifications
• Impose penalties upon employers of $1,100 per worker for first-time violations and $5,000 per worker for repeat or “willful” violations
• Make it illegal for employers to discriminate or retaliate against workers who exercise their rights under the bill
• Allow the DOL and Internal Revenue Service (IRS) to share information on cases where employers misclassify workers
• Amend the Social Security Act to create penalties for misclassifying employees – or paying unreported wages to employees – for unemployment compensation purposes
• Direct the DOL to perform audits on employers in industries that frequently misclassify workers
• Direct state unemployment agencies to conduct audits to identify employers who are misclassifying employees

While two previous versions of this bill failed to gain any traction, given the recent sensitivity of this subject, it will be interesting to see whether this go-around will have a different outcome.  We will continue to monitor this and will let you know how the bill fares.