In recent years, government regulators has stepped up enforcement actions against companies that wrongfully classify workers as independent contractors rather than employees. According to the Wall Street Journal, those actions could sharply increase. The Wall Street Journal is reporting that:
Last year, the Labor Department started awarding $10 million in annual grants to state labor regulators to focus more attention on worker misclassification. A portion of the grant money is awarded as bonuses to states that show gains in detecting such violations.
The article also notes that the companies in the construction industry in particular are finding themselves the targets of the worker misclassification audits. By classifying a worker as an independent contractor rather than an employee, construction firms can avoid paying overtime and payroll taxes. As the article notes, misclassifying a worker can have serious consequences. Last year, the Department of Labor announced a $1.3 million settlement with several drywall contractors that the Department of Labor said wrongfully classified more than 1000 workers. Also, certain states are reporting almost a 100% audit rate for contractors.
Determining whether a particular worker is an independent contractor or employee is not always easy. Indeed, different federal agencies, all use slightly different tests to determine whether someone is an independent contractor versus an employee. For example, the IRS uses a 20-factor test, the NLRB a 10-factor test, and the Department of Labor a 6-part test. Moreover, the tests are fact specific. Generally, courts and administrative law judges focus on the amount of control the company exerts over the independent contractor, whether the individual controls the means and methods of performing his duties, whether the independent contractor is a recognized separate business, and whether the individual owns the tools and equipment necessary to perform his job. However, a few things are certain, simply referring to an individual as an independent contractor and giving an individual a 1099 form at the end of the year are not evidence of independent contractor status.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
