I was just reading Josh Waxman's post over at Washington Labor & Employment Wire about the Department of Labor's plans to reduce misclassification of employees as independent contractors. In addition to DOL's plan, a new bill on the subject is being considered by Congress. According to the bill itself, the Employee Misclassification Prevention Act (S. 3254, H.R. 5107) aims to, "require persons [namely, employers] to keep records of non-employees [independent contractors] who perform labor or services for remuneration and to provide a special penalty for persons who misclassify employees as non-employees."
While some employers intentionally misclassify employees as independent contractors for a variety of reasons, including saving money on payroll taxes and employee benefits, many employers unintentionally misclassify employees. It's an easy mistake to make. For starters, state law and federal law are not the same and both must be considered. Both state and federal law use complex multi-factor tests to determine proper classification. While lawyers, judges and legislators have a certain fondness for such tests, other people often have a difficult time applying them to particular situations. Even the folks answering the help line over at Washington State Department of Labor and Industries ("LNI") occasionally get it wrong. Perhaps in recognition of these difficulties, the IRS has a form, SS-8, which can be submitted to have the IRS formally determine the correct classification. However, the IRS takes months to make that determination, and it is of no use when it comes to state law. Because of these difficulties, it is my sincere hope that increased efforts to reduce misclassification include not only penalties, record keeping, plans and notices, but also more and better resources to help employers properly classify their workers. In the meantime, for those struggling to correctly classify workers, LNI has a webinar and links to other resources on the issue.