Built around a vision of “good jobs for everyone,” President Obama’s fiscal year (FY) 2011 budget includes a request for $117 billion for the U.S. Department of Labor (“DOL”). As part of this DOL budget request, $25 million has been earmarked to (1) fund a joint Treasury-DOL initiative to detect and deter the improper misclassification of employees as independent contractors and (2) strengthen and coordinate Federal and State efforts to enforce labor violations arising from misclassification. To implement these initiatives, the DOL expects to hire 90 additional wage and hour investigators.

Individuals wrongly classified as independent contractors are denied access to many benefits, including but not limited to: health insurance, retirement plans, vacations, sick days, family and medical leaves, overtime, workers’ compensation, unemployment insurance and the protections of many federal and state civil rights laws that protect employees. In the last comprehensive estimate, the Internal Revenue Service estimated that 15% of all employers misclassified a total of 3.4 million workers as independent contractors, resulting in an estimated annual revenue loss of $1.6 billion (in 1984 dollars).

While misclassification occurs in all industries, the DOL has indicated that misclassification is more prevalent in several high risk industries, including construction, janitorial, home health care, child care, transportation and warehousing, meat and poultry processing and other professional and personnel service industries. Further, the DOL notes that many studies have concluded that the construction industry, in particular, contains a significant amount of misclassified workers.

All employers must be on notice that the DOL is very serious about pursuing the improper classification of workers as independent contractors. As a preventative measure, all employers should begin reviewing their arrangements with their “independent contractors” to ensure that the individual is properly classified. A written agreement will not be enough to establish independent contractor status. The DOL will be looking beyond the written agreement to determine how much control the company has over the activities of the independent contractor’s duties. In general, the more control that a company possesses over the activities of an independent contractor, the less likely that the DOL will agree that the individual is properly classified.