Employee vs. independent contractor classification: Employers want answers

With the rising benefit costs employers face when hiring full-time or regular part-time staff, the line between employee or independent contractor classification can become blurred as employers turn to other means for filling positions, such as temporary employment agencies. And as employers look to other hiring outlets, they must be careful to ensure employees aren’t misclassified as independent contractors. There are, of course, situations where workers are indeed independent contractors by the definitions of the law, and thus not eligible for certain benefits. The determination is based on whether workers are dependent on the employer for their livelihood (therefore an employee) or are contracting their services out to multiple employers.

But companies who run afoul of worker classification issues could end up on the radar of state and national regulatory bodies, including the U.S. Wage and Hour Division and the Internal Revenue Service.

“Tackling misclassification has been a priority since day one of this administration,” U.S. Secretary of Labor Tom Perez said in an online chat hosted by the Department of Labor last month. “We use a combination of strategic enforcement, outreach, education, and partnerships with federal and state governments to maximize our resources and combat this widespread problem. We focus on industries where wage violations are prevalent and workers are often afraid to speak up or don’t know their rights.”

In the last fiscal year, the Wage and Hour Division helped workers regain $240.8 million in back pay, per government data. About 57 percent of that back pay was overtime. Furthermore, about a third of that back pay went to workers in lower-wage fields, including health care.

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Misclassification of Employees as Independent Contractors. United States Department of Labor, Wage and Hour Division (WHD).

Benoff, Jared.Secretary Perez Answers Your Questions on Employee Misclassification U.S. Department of Labor Blog. July 28, 2015.

Fiscal Year Statistics. U.S. Department of Labor, Wage and Hour Division.