The Misclassification Initiative (part 1)

The title of this article may sound like a new Tom Cruise movie, perhaps with a borrowed storyline or two.  But it’s not.

The “Misclassification Initiative” is actually a federal project created by Vice President Biden’s Middle Class Task Force designed to find and correct employers’ misclassification of employees as independent contractors, to reduce fraudulent filings, to help reduce the employment tax portion of the tax gap (i.e., the amount of tax liability that is not paid on time), and to improve compliance with federal labor laws.

Multiple government agencies are working together to ensure that the Misclassification Initiative is implemented. In September 2011, Secretary of Labor Hilda L. Solis signed a Memorandum of Understanding between the U.S. Department of Labor (DOL) and the IRS, paving the way for the agencies to share information and coordinate law enforcement activities.  (You can read the DOL News Release here).

The Misclassification Initiative has wasted no time searching for and fining violations of federal wage and hour laws.  Between September 2011 and January 2013, the U. S. Department of Labor’s Wage and Hour Division collected $9.5 million in back wages for minimum wage and overtime violations under the Fair Labor Standards Act, and this activity continues.  These multimillion dollar violations primarily resulted from employers misclassifying employees as independent contractors. 

The initiative is spreading throughout the states as well; in fact, by January 17, 2013, fourteen (14) states had signed separate Memorandums of Understanding with DOL’s Wage and Hour Division.

While Georgia does not have a separate Memorandum of Understanding with the DOL, this does not mean that the DOL or the IRS is inactive in Georgia.  In March, 2013, for example, a Marietta, GA company was forced to pay more than $39,000 in back wages and penalties following a DOL investigation that found violations of the Family and Medical Leave Act and the Fair Labor Standards Act’s minimum wage, overtime and record-keeping provisions. The department also assessed $7,741 in civil money penalties for the company’s repeat violations of the FLSA.  (You can read the DOL News Release here).

Although Georgia has not entered a Memorandum of Understanding under the Misclassification Initiative with any specific agency, Georgia employers should be aware of this initiative and the fact that both federal and state agencies (i.e. the Georgia Department of Labor and the Georgia Department of Revenue) are paying closer attention than ever before to individuals classified as independent contractors.  Additionally, employers should know that Federal wage and hour laws, such as the Fair Labor Standards Act, do not take intent into consideration when determining liability: in other words, an innocent misclassification of an individual as an independent contractor instead of an employee may have equally expensive results for an employer.

The bottom line

This is a good opportunity for any employer to review the status of all individuals on the company payroll to ensure that those among its workforce whom it classifies as independent contractors truly are independent contractors according to both federal and state definitions.  If you have any doubt as to such classification, an employment lawyer at Briskin, Cross and Sanford would be happy to assist you.

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One comment on “The Misclassification Initiative (part 1)

  1. […] I noted earlier this week, The Misclassification Initiative is, in fact, not an action movie, but a collaborative effort […]

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