labor lawAdivision of labor law center

The IRS  and U.S. Department of Labor are cracking down on employers who try to avoid employment taxes by misclassifying employees as independent contractors.

Under IRS regulations, an independent contractor is a self-employed small business person. The employer does not have to pay FICA or unemployment taxes on independent contractors, under federal law. State laws requiring workers’ comp insurance do not apply to independent contractors. Employers are also not required to withhold federal income taxes for independent contractors.

The minimum wage and overtime provisions of the FLSA, the federal Fair Labor Standards Act, do not apply to independent contractors.

All of these factors make hiring independent contractors very attractive to employers. However, both the IRS and the U.S. Department of Labor have stepped up enforcement actions against employers who misrepresent workers as independent contractors, when in fact they are employees.

To further complicate the issue, there is no one standard or group of standards to determine if a worker is an independent contractor, rather than an employee. The IRS has traditionally used the 20-factor test, particularly to determine if workers’ compensation coverage is required.

The IRS 20-factor test basically determines how much control the employer exercises over the worker. In general, a high level of control results in employee status, rather than independent contractor status. When an employer controls when, where or how the work is performed, that usually constitutes employee status.

Other agencies use (more…)

The U.S. Department of Labor or DOL announced on January 15, 2009 that Sandia Corp. has agreed to pay more than $2 million in back wages for unpaid overtime.

In an interesting wrinkle, the Albuquerque employer apparently tried to avoid overtime payments for non-exempt employees by setting no fixed payroll week.

Under the federal FLSA or Fair Labor Standards Act, employers must pay an employee overtime when the employee works more than 40 hours in the payroll week.

Information on the FLSA requirements for overtime are included on the federal minimum wage poster that every employer must prominently display in the workplace.

By not having a fixed payroll week, Sandia averaged the employees’ hours over two or more weeks. Under the FLSA, an employer can establish any fixed payroll week that the employer likes. The payroll week can run from Sunday to Saturday, or from Monday to Sunday, or from Thursday to Wednesday. Under some circumstances, an employer can change the payroll week, as long as employees are given advance notice.

However, the employee’s workweek must be a fixed and regularly recurring period of 168 hours, (more…)