by Fred Abramson on April 29, 2010
I have written extensively about the potential problems employers can have by misclassifying their workers as employees. The IRS has been cracking down on companies that try to pass off regular employees as independent contractors. It now may become a crime.
Congress is about to act on a bill entitled the Employee Misclassification Prevention Act that would impose criminal penalties on companies that misclassify workers. It appears that both the House and Senate is behind the bill, so it is likely to become law.
If this new law is passed, it would impose finds of $5,000.00 for each worker that is misclassified as an independent contractor. According to the American Bar Association Journal, the new law would also require employers to provide new hires with notice concerning their rights
There is an excellent and lengthy article on the subject by the large law firm Pepper Hamilton, LLP.
The new law is a natural progression of the Obama administration focus on cracking down on employers who improperly classify employees as independent contractors.
I would suggest that companies review all of their employment classifications to avoid potential criminal liability. You may be able to minimize the risk to your company by:
- Wholesale review of all of your workers.
- Restructuring the relationship that you have with your independent contractors that fall within a gray area of the law by re-classifying them as employees. I would suggest that you should err on the side of caution and classify your workers as employees if you are not sure.
- Draft written agreements with all of your workers stating their employment status.
- If you want to limit the workers that you classify as employees, you may have a third-party such as a staffing agency performing the hiring.
If you have any questions regarding independent contractor agreements or classification of employees, contact me at the Law Office of Frederic R. Abramson at 212-233-0666.
by Fred Abramson on March 17, 2010
Wage and Hour lawsuits are rising according to Kiplinger.com. Due to the faltering economy, workers who have been let go are looking to the courts to seek monetary damages. Usually the lawsuits are based upon allegations that hourly workers are not paid overtime. This is a violation of the Federal Labor Standards Act.
According to the article, New York was one of the states that has seen the most significant growth in Wage and Hour lawsuits. Among the reasons why there have been an increase in litigation is because these cases are relatively easy to win. The proof is in the numbers. If you are a worker, you simply have to prove that you worked overtime. This is usually evidenced by a time sheet. Large employers also keep records of employees hours. If the workers paycheck doesn’t match the hours worked, the worker wins. Awards can include two to three years of back pay plus benefits.
The Obama administration is also placing a greater emphasis on regulation and enforcement. As a result, more workers are being notified of Wage and Hour violations.
Here are a few ways that a business can protect itself from Wage and Hour lawsuits:
- All worker classifications should be reviewed. Make sure that you are properly classifying any independent contractors.
- Review all worker wages. Sit down with an attorney to see if you workers are being properly paid. This could save your company millions of dollars. Wal-Mart settled a $65 million dollar claim last year.
- Speak to and train all of your supervisors. Managers often demand workera to work overtime without knowing its implications.
- If there is a problem don’t ignore it. If an employee complains that she has not been paid overtime, take it seriously. Wage lawsuits can be just as costly as sexual harassment litigation.
- Make sure your employee handbook is up to date and addressses wage and hour issues.
- Be aware of the difference between employees who are paid salaries and hourly workers.
Another tip, as Rush Nugut points out is that a business should consider hiring a lawyer during the auditing process as to keep the attorney-client privledge.
I would also like to thank Craig Roberts for his insights regarding this issue while watching our children slide on giant inflatables at a Pump it Up party in Plaiview, Long Island.
If you have any question regarding Wage and Hour Lawsuits, whether you are an employer or employee, contact the Law Office of Frederic R. Abramson at 212-233-0666.
Misclassifying an an employee as an independent contractor is one of the most expensive mistakes that a business owner can make. It does not matter whether you intentionally made the mistake. You can be subject to large penalties, fines and even subject the criminal liability. I have recently reported that the IRS has been targeting employers with independent contract workers.
The problems don’t end with the employer. Misclassified workers can lose:
- Worker’s Compensation Insurance
- Unemployment benefits
- Wage protection such as minimum wage and overtime.
Employers who hire independent contractors have an unfair advantage because labor costs less and they could charge less for their goods and services. If you are in the construction industry, a competitor who improperly misclassifies their workers as independent contractors can underbid you.
The employer who gets caught with improperly classifying workers as independent contractors can be subject to liabilities for:
- Unpaid Federal, State and Local Income Tax withholdings
- Social Security and Medicare contributions
- Workers’ Compensation Premiums
- Overtime
- Unemployment compensation
- State-mandated benefit programs
Audits
The New York Department of Labor conducts two types of audits, general and specific. The general audits are conducted randomly with nothing specific as its subject. It is interesting to note that these audits are not statistically random as specific industries, such as construction are heavily targeted. Specific groups are the subject to targeted audits as well, which are based on a variety of factors, including prior issue with improper classification. The Cornell Law Institute performed an excellent report about the misclassification of independent contractors in New York and is a great resource.
Prevailing Wage Duties
On publicly funded construction projects, some companies use missclassification as a way to avoid paying prevailing wage rates. A company that is caught can be subject to paying restitution to affected employees, fines for failing to maintain payroll and general records and submit valid and certified records.
Conclusion
Due to the increased scrutiny on the use of independent contractors, employers, especially those in the construction industry need to focus on how they classify their workers. You should conduct audits internally with legal counsel to determine if their are any issues.
If you have any questions regarding the classification of independent contractors, contact me at the Law Office of Frederic R. Abramson at 212-233-0666.
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=1b54c871-e73c-4da7-b8cf-6607be849f08)
