Why Does the Government Consider Misclassification Significant?

  • Misclassification of workers as independent contractors, rather than as employees, may violate federal labor laws, other workforce protection laws, and various age and disability discrimination rules.
  • Companies that misclassify may underpay federal employment taxes and state unemployment taxes and may fail to withhold income taxes otherwise due.
  • Misclassified individuals may take tax deductions as independent contractors which as employees they cannot claim.
  • Misclassified individuals may remain ineligible for employer-sponsored health care benefits, increasing the pool of uninsureds with health care costs paid by public dollars.

What Does the Government Accountability Office Propose?

  • The GAO now has called for coordination and consistency in classification rules across the DOL, IRS, PBGC, Department of Health and Human Services, EEOC, NLRB, SSA, and the various state enforcement agencies.
  • These agencies currently use different standards for classifying workers and often do not share information about audits and enforcement efforts.
  • The GAO envisions that agencies will adopt clear and uniform classification standards and will share information so that they each promptly report issues detected by one agency to the other agencies interested in enforcement.

What Are the Legal Risks?

  • Governmental agencies and misclassified individuals may bring claims for: minimum wages; overtime; unpaid leave; safety and health protections and related penalties; federal income and employment taxes; pension and health benefits; employment discrimination based on factors such as disability or age; and unemployment insurance benefits.
  • Employee misclassifications have resulted in several recent multiple plaintiff and class actions under the Federal Labor Standards Act, various state wage and hour laws, and the Employee Retirement Income Security Act.