Last year, the Employee Misclassification Prevention Act was introduced into the House and Senate (Ohio’s Sen. Sherrod Brown was a sponsor). On April 8, 2011, Sen. Brown, along with two other senators, introduced the Payroll Fraud Prevention Act. Similar to the prior version, the current version of the bill expands the Fair Labor Standards Act to cover the misclassification of employees as independent contractors. The bill would require employers to provide notice to workers of their classification, including directing workers to the Department of Labor’s website for further information.

This bill also has teeth. Significantly, the bill would impose a fine of up to $5,000 on employers for each violation and impose triple damages for willful violations of minimum wage and overtime laws that result from the misclassification of workers. In effect, if an employer misclassifies 10 employees, it may be liable for a fine of up to $5,000 for each employee and be liable for triple times the overtime it owes to each employee.  

Sen. Brown issued the following comments regarding the bill: “Intentionally treating workers as subcontractors when they really are employees is payroll fraud: it cheats workers, taxpayers, and other businesses that play by the rules.”

This bill is another in the line of measures taken by the Department of Labor, the IRS and Ohio’s Joint 1099 Task Force to recover revenue lost due to employers’ misclassification of workers. It is more important than ever to ensure that workers treated as independent contractors cannot be determined to be employees pursuant to the 20-factor test used by the IRS, the DOL’s economic realities test or the common law tests used by courts.