The Federal and State Labor Departments, and the IRS, are all cracking down on employers who hire workers who qualify as employees but are paid as interns or independent contractors. New York and 15 other states have partnered with the Department of Labor to coordinate misclassification initiatives, and investigate and prosecute cases.
In 2013, New York’s “Joint Enforcement Task Force on Employee Misclassification” identified 24,000 instances of employee misclassification, discovered $333.4 million in unreported wages and assessed nearly $12.2 million in unemployment insurance contributions. In addition to the Task Force’s work, the New York Department of Labor (“DOL”) is prosecuting many of the misclassifications as fraud. The NY DOL completed more than 2,200 fraud investigations in 2013, discovering $271.2 million in unreported wages by employers and collecting nearly $10 million in unemployment insurance contributions.
Worker classification issues involve many tax and employment laws, and have civil as well as criminal implications. If an employer misclassifies a worker as an intern or independent contractor and the government later discovers that the worker should have been classified as an employee, the employer is responsible for all the taxes it should have withheld, and possible overtime wages, as well as interest and penalties. Worker misclassification usually takes place on a large scale, and persists unnoticed for years, which can result in millions of dollars of unpaid taxes and wages. With the increased level of government scrutiny on employers, it is more important than ever for employers to consult counsel when deciding how to classify their workers.