The Government Cracks Down on Misclassification

Regardless of the size of your company, worker misclassification should be on the list of concerns you are addressing.

Many companies misclassify their workers as independent contractors rather than employees, creating tremendous financial risk.

The Department of Labor (DOL) has estimated that 30% of employers may be misclassifying their workers, while other industry experts feel the percentage is even higher.

Misclassification—whether unintentional or deliberate—is under increased scrutiny by multiple government agencies, especially the Internal Revenue Service.

The IRS has good reason for ramping up its investigation and enforcement of misclassification; it is seeking to recoup what it estimates is billions of dollars in lost tax revenue as a result of workers being misclassified. And state agencies are on a parallel campaign to fill their coffers.

Many states, including New York, Masschusetts, Michigan, New Jersey, and Iowa have created inter-agency task forces to strengthen enforcement mechanisms and had resulting large recoveries. Thus far, 37 states have signed MOU's with the DOL, enabling them to share misclassification information and coordinate enforcement efforts. Other states have passed laws creating a "presumptive employee status," including California, Florida, Illinois, New Jersey, and Wisconsin.

These efforts reflect a comprehensive approach to addressing worker misclassification, including an increase in funding and resources for the purpose of auditing and investigating. 

Review your current practices to minimize the risk and exposure

Given the marked increase in enforcement efforts, all businesses should proactively examine their employment practices to formulate a plan for minimizing the risk and exposure to worker misclassification claims.

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