Employers Beware: United States Department of Labor and Internal Revenue Service Team up to Combat Misclassification of Workers as Independent Contractors

Posted on October 3, 2011 by Randi W. Kochman

On September 19, 2011, the United States Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”) announced the agencies’ agreement to jointly combat the misclassification of workers as independent contractors.  Specifically, the DOL and IRS’s joint Memorandum of Understanding (“MOU”) indicates that their efforts are aimed at ending some employers’ practice of misclassifying employees.  In signing the MOU at the DOL ceremony Secretary of Labor Hilda L. Solis declared: “We’re here today to sign a series of agreements that together send a coordinated  message: We’re standing united to end the practice of misclassifying employees.”  Employers must take heed.

Various state and labor officials have signed on to the MOU, including Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah, Washington and New York’s Attorney General.  State labor agencies in Hawaii, Illinois and Montana have also entered into memorandums of understanding with the DOL’s Wage and Hour Division.  By signing on to the MOU, the agency and state signatories may more freely share information and coordinate law enforcement.  Employers that utilize “independent contractors” in any manner are well advised to assess their relationships and determine whether the classification can withstand what will surely be heightened scrutiny from various enforcement agencies.

Of course, as independent contractors do not necessarily receive minimum wage or overtime pay, unemployment insurance, workers' compensation or Social Security benefits, they lose valuable protections if they become disabled or unemployed, and thus become a drain on the system.  In addition, employers do not pay employment taxes on compensation paid to such contractors, which deprives the government of substantial tax revenue.  For all these reasons, the government is well incentivized to root out improperly classified relationships.  The DOL and IRS have made clear their intention to do just that.

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U.S. Department of Labor Releases Frequently Asked Questions for Furloughs and Other Reductions in Pay and Hours

Posted on August 17, 2009 by Michael N. Morea

In July, the United States Department of Labor released an updated "Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues."  The FAQ can be found at http://www.dol.gov/esa/WHD/flsa/FurloughFAQ.pdf and answers basic questions regarding how the Fair Labor Standards Act ("FLSA") impacts reductions in pay or in hours worked by employees.

Given the current economic environment many employers are reducing their workforce.  Other employers, instead of terminating employees, are reducing the compensation their employees' receive or reducing the hours worked in order to reduce payroll.  Any employer seeking to reduce pay or hours should be familiar with how the FLSA might impact such a decision.  Many of the questions an employer may have are covered by the FAQ, which answers questions such as whether it is legal to reduce salary or hours of employees under the FLSA.  The FAQ includes discussions of situations involving both exempt and non-exempt employees under the FLSA and can help employers avoid violating the FLSA. 

Although the FAQ covers the FLSA, employers should be aware that reductions in hours or pay may also involve consideration of other employment laws, such as anti-discrimination or leave laws, which are not covered by the FAQ.
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