Warning: Employee Classification Errors Are Costly!

How confident are you that your Exempt employees and Independent Contractors can withstand scrutiny by the Department of Labor?  We hear many employers say they’re very confident, only to see that confidence diminish rapidly when they have to actually verify it.

We’ve done several articles about the dangers of misclassification.  Now the Department of Labor (DOL) is making it potentially much more serious and costly.  The DOL’s Wage & Hour Division (WHD) has 250 new investigators, and plans to have 1,000 by the end of 2011 – a 50% increase over 2008.  Their focus:  partnering with other DOL agencies, state agencies and others to investigate misclassifications on a nationwide basis.   This includes exempt and independent contractor classifications.  The fiscal budget for 2011 also includes $10.9 million in grants to states to assist them in identifying misclassifications through states’ unemployment systems.

Why the push for this heightened enforcement?   WHD’s data indicates this is a growing problem.  In fiscal year 2009, WHD found $2,650,520.28 in back wages owed to 2,190 employees where misclassification was the primary reason an employer did not pay overtime and/or minimum wages.  This was a 50% increase over 2008.

Independent Contractor misclassifications raise a number of issues besides minimum wage and overtime.  In those situations, the worker is generally not covered by workers’ compensation and unemployment insurance, leaving insurance carriers and state UI funds underfunded.

In addition to increased investigations and enforcement, the DOL is supporting the passage of Senate Bill 3254, the “Employee Misclassification Prevention Act” (EMPA) which includes:  making misclassification a violation of the Fair Labor Standards Act; requiring employers to provide a written notice to employees of how they are classified, with a presumption the person is an employee if the notice isn’t provided;  adding civil monetary penalties for failure to keep adequate recordkeeping.

If you have exempt employees or independent contractors, contact your YPP HR Manager for assistance in reviewing these classifications.

Comments are closed.