IRS and DOL each have a stake in preventing the misclassification of workers as independent contractors, rather than employees. From IRS’s perspective, the misclassification of workers results in lost employment taxes and retirement plan qualification issues. From DOL’s perspective, it results in the violation of employee protections, such as wage and hour laws and contributions to social security. Businesses that properly classify workers as employees also are disadvantaged by businesses that save money by misclassifying workers as independent contractors.

According to the DOL news release on the MOU, labor commissioners and other agency leaders representing Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington signed memoranda of understanding with DOL’s Wage and Hour Division, and, in some cases, its Employee Benefits Security Administration, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs and Office of the Solicitor. The state labor agencies of Hawaii, Illinois and Montana, as well as New York’s attorney general, also will be entering into memoranda of understanding with DOL.

In announcing the signing of the memoranda, Secretary of Labor Solis stated, “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.”

The MOU between IRS and DOL is the latest in a series of efforts to curb worker misclassification that date back to 1978, when Section 530 of the Revenue Act of 1978 was enacted to provide employers with a safe harbor on worker classifications until Congress addressed the issue. While some legislation has been enacted since 1978 that addresses certain aspects of the worker classification issue, Congress has yet to address the issue in a comprehensive manner. This is largely due to it being a difficult issue that does not lend itself to a simple legislative fix