labor lawAdivision of labor law center

        Does misclassification of employees as independent contractors increase during a recession? Some experts seem to think so. Several states and the federal government are reacting to this crisis with increased enforcement and higher penalties against employers who violate these statutes.

 

        Speaking to SHRM, the Society for Human Resource Management, attorney Frank Connolly said,” When it comes to a lot of start-ups or small businesses that don’t have a lot of assets, a lot of it is naïveté and a lot of it is convenience. I don’t have the money to pay a lot of people a lot of cash. I can avoid it by calling these people independent contractors.” Connolly, with the firm of Jackson Lewis in Washington, D.C. adds, “These employers probably don’t realize that they are violating the law.”

 

        In most cases, if the employer controls when, where or how work is performed, the worker is an employee, not an independent contractor. There are a number of dangers in classifying a worker as an independent contractor when he or she should be an employee:

• Violates state and federal tax regulations, triggering an IRS audit
• No workers’ comp insurance coverage violates federal law and may cost the employer his or her business if the employee is injured
• Violates federal and state minimum wage and overtime laws
• Violates state unemployment laws

        The U.S. Department of Labor recently announced increased enforcement against employers who misclassify workers.

In addition, several states have implemented new laws that increase penalties for employers who make this mistake. In Massachusetts, a worker is considered an employee unless the service is performed outside the usual course of business of the employer. In California, the law goes one step further. An independent contractor cannot be delivering the business’s primary service or product. A messenger service, for example, cannot employ messengers as independent contractors – they must be employees.

 

        Connecticut recently passed a bill that would make misclassifying workers a felony, and require the employer to immediate stop work. Each day the independent contractor works is a separate violation subject to a $300 fine. That law is expected to be signed by Governor Jodi Rell in the near future.

 

 

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