Recently, the US Department of Labor’s Wage and Hour Division (“WHD”) released its FY 2012 budget request (the “Budget”). In reviewing the Budget, the WHD is seeking $15,223,000 and an increase in 107 full-time employees to continue its well-publicized initiatives to (1) detect and deter the misclassification of employees as independent contractors and (2) strengthen the coordination and information sharing between federal and state agencies.

The Budget briefly describes the extent of the misclassification problem. First, workers who are improperly classified as independent contractors are denied access to family and medical leave, overtime, civil rights protections, and unemployment protections. Second, worker misclassification generates substantial tax revenue losses to the various governmental trust funds. According to the last IRS estimate, conducted in 1984, approximately 15 percent of all employers misclassified about 3.4 million employees as independent contractors, resulting in an estimated tax revenue loss of $1.6 billion dollars annually. Current studies estimate that misclassification affects 10 percent to 30 percent of all employers. Third, employee misclassification continues to be very prevalent in the following industries: construction, janitorial, home health care, child care, transportation and warehousing, meat and poultry processing, and other profession and personal service industries.  

According to the Budget, with the requested increase in funding and workforce, the WHD intends to increase the number of directed investigations that it conducts, increase its presence in key industries and target employers who have been identified as having misclassified workers. In support of its mission to protect workers, the Budget states that the WHD “must increase the number and percentage of directed investigations” and indicates that directed investigations have been shown to have a clear deterrent effect within industries in the same geographic area.  

With employee misclassification continuing to be a centerpiece of the WHD Budget requests on an annual basis, we urge all of our clients to review their employment arrangements to determine whether any “independent contractors” being used would actually meet the definition of an independent contractor. Should you have any questions, please be sure to contact your relationship attorney.