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Employee or Independent Contractor? Feds and States Join Forces to Fight Worker Misclassification

By Catherine Gordon | June 29, 2012

As a business owner, correctly classifying the people who work for you as employees or independent contractors has always been critically important due to the intense scrutiny of this issue on both a federal and state government level. Now that scrutiny is about to get kicked up a notch with the Department of Labor's (DOL) announcement of its new partnerships with the Internal Revenue Service (IRS) and several state governments, aimed at strengthening efforts to end employee misclassification.

Through the signing of memorandums of understanding, the DOL will be better able to share information and coordinate law enforcement with the IRS and participating states to ensure that employees are correctly classified and receive the protections to which they are entitled under federal and state law. The joined enforcement efforts also aim to make sure that responsible employers who are complying with the law regarding worker classification are not at a disadvantage because of their compliance.

How many states are participating? Labor commissioners and other agency leaders representing seven states signed memorandums of understanding with the DOL, as well as with other government agencies such as the Occupational Safety and Health Administration (OSHA). The states onboard so far are:

  • Connecticut
  • Maryland
  • Massachusetts
  • Minnesota
  • Missouri
  • Utah
  • Washington

Agreements are currently pending for the DOL to enter into memorandums of understanding with the state labor agencies of Hawaii, Illinois and Montana, and with New York's attorney general.

What can a small business employer expect from these alliances? "This agreement takes the partnership between the IRS and Department of Labor to a new level," stated IRS Commissioner Doug Shulman. "In this new phase of our relationship, we will work together more efficiently to address worker misclassification issues, and better serve the needs of small businesses and employees."

Take Action. If there is any doubt whatsoever that your worker classifications are in order, now is the time to analyze your business relationship with the people providing services. Determine whether they are your employees or independent contractors for both federal and state employment law purposes, as well as for payroll tax obligations. Then you can take the steps necessary to ensure that you are in compliance and avoid costly fines and penalties.

Office & HR

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