Think FLSA’s Confusing Now? New bill would create the ‘non-employee’
Another day, another crack at cutting down on the improper classification of employees as independent contractors by making life tougher on every employer — including those abiding by the law.
The latest attempt by Congress, and the ninth since 2007, to stymie “intentional misclassification” is called the Payroll Fraud and Prevention Act.
Introduced by Senator Bob Casey (D-PA), the bill would make the misclassification of employees as independent contractors a new federal labor offense under the FLSA, which doesn’t currently address the issue of misclassification.
The bill would also create a new category of worker: the “non-employee.”
Casey said the bill’s designed specifically to prohibit the willful misclassification of an employee as a non-employee and is in no way intended to punish those who legally use independent contractors. However, it won’t just punish those intentionally misclassifying workers; even unintentional misclassification would violate the law.
More paperwork for every employer
Many business groups aren’t happy with the legislation. They feel it would create additional, onerous mandates on companies that already have to deal with the complexities of the FLSA, FMLA, ADA, ERISA, as well as numerous other federal, state and local laws.
The mandate that has most dissenting businesses up in arms is the requirement for every employer to provide a classification notice to both employees and non-employees (i.e., independent contractors) performing labor or services for their organizations.
The notices must state:
- a worker’s classification as either an employee or non-employee for whom no insurance contributions, taxes or overtime wages are paid
- the DOL has created a website for all workers explaining their rights under federal law, and
- workers should contact the DOL if they suspect they have been misclassified.
The notices would be due to all existing workers — even contractors — within six months following the passage of the law and to new workers upon hire.
In addition, the bill would impose additional record-keeping requirements on businesses that use contractors and subject them to more targeted government audits to ensure compliance — even in businesses where no violations have been reported.
Failure to abide by the bill’s requirements could result in some pretty steep penalties.
The penalties
Failing to provide the classification notice would result in a $1,100 penalty for every employee who didn’t receive a notice — regardless of whether they’re properly classified, or whether they’re an employee or a contractor. Second offenses will cost employers $5,000 per affected employee.
But that’s not where the penalties end for violations of the notice requirement. If an employer fails to provide a non-employee with the notice in a timely fashion, the worker will be presumed to be an employee, thus forcing the employer to shell out payroll taxes and other possible obligations for the employee.
The only way to rebut the worker’s new classification is with “clear and convincing evidence” the individual is a non-employee.
Other penalties for violations of the law include:
- triple damages for willful violations of minimum wage or overtime laws resulting from a misclassification, and
- “additional penalties” imposed by the Secretary of Labor on employers that misclassify workers for unemployment compensation purposes.
The outlook
The chance of this bill gaining much traction in Congress is slim under the current regime. But that doesn’t make staying up on the law superfluous.
With so many iterations of this law already having been brought before Congress in some fashion, it’s clear the movement to tighten up the enforcement of proper classification practices has a lot of backers.
For now it’s just a waiting game. Lawmakers in support of more stringent classification regs are likely biding their time until they have enough votes to make a big push to get something past Congress. And when that happens, the odds are good this bill will be the foundation upon which they’ll build their legislation.
