On Monday, February 1, 2010, the U.S. Department of Labor (DOL) released its budget for the 2011 fiscal year. In a 95-page summary of the new budget, the DOL elaborated upon its plans for the approximately $14 billion it seeks in discretionary budget authority. According to the summary, the DOL will focus its efforts in 2011 on supporting reform of the Workforce Investment Act, rebuilding Worker Protection Programs, initiating a multi-agency legislative proposal to establish automatic workplace pensions, and boosting funds for unemployment insurance integrity efforts. From our perspective, however, the two most notable aspects of the 2011 budget are its provisions concerning employer misclassification of workers and paid family leave.

The DOL proposes to devote $25 million to a joint Labor-Treasury Misclassification Initiative that will enable the agency to better detect, investigate, and prosecute employers who misclassify their workers, and to offer competitive grants to boost states’ incentives to address the problem. In addition, the DOL proposes to further limit the possibility of employer misclassification by:

  1. requiring employers to demonstrate that their employees are classified correctly,
  2. closing the safe harbor created by Section 530 of the Revenue Act of 1978, and
  3. making misclassification of employees an explicit violation of the FLSA.

As the Labor and Treasury Department coordination suggests, this Initiative has a dual focus of adding to state and federal government revenues by ensuring that businesses pay appropriate payroll taxes on behalf of individuals would be more properly classified as employees and ensuring that those persons who should be classified as employees receive the overtime and benefits to which they would be entitled. As we previously have reported, Ohio Attorney General Richard Cordray announced an initiative approximately one year ago to target independent misclassification. Assuming that the DOL’s budget is approved, employers will need to pay even more attention ensure their intended independent contractor relationships will pass muster. Errors in classification undoubtedly will prove to be very expensive.

Finally, another important provision of the DOL’s budget for this next fiscal year is additional funding to establish more state paid leave funds. Currently, three states (California, Washington, and New Jersey) have state paid leave insurance programs which allow workers, who cannot afford to take unpaid leave under FMLA, to take time off to care for an ill child, spouse, parent, or bond with a newborn while still receiving benefits from the state. The 2011 Budget establishes a $50 million fund within the DOL that provides competitive grants to states that choose to launch such paid-leave programs. These funds will be allocated to assist states with planning and start-up activities related to paid-leave programs.