- Legislative Updates | February 12, 2014
Issue of Employee Misclassification Heats Up in Congress, DOL
On November 12, the Workforce Protections Subcommittee of the Senate Committee on Health, Education, Labor, and Pensions held a hearing on the willful misclassification of workers as independent contractors by their employers.
The hearing focused on the abuse of this practice by “bad actors” whose misclassification of employees was deliberate and competition-driven. As he convened the hearing, Subcommittee Chairman Bob Casey Jr. (D-DE) noted the “valuable role” independent contractors serve in the economy and emphasized that the intent of the hearing was not to “point fingers at companies that are following the law or on law-abiding independent contractors.”
The use of independent contractors is a common business practice in construction. It is typical for the industry to see peaks and valleys in business that do not allow for 100 percent staffing at all times, and so some companies choose to subcontract with smaller independent companies who take up portions of the work, providing personnel and materials on an open market basis.
Chairman Casey used the hearing as an opportunity to introduce new legislation, the Payroll Fraud Prevention Act, which would make independent contractor misclassification a new federal offense, increase fines for violations, create significant record-keeping requirements for businesses, and require employers to notify all workers of their status as either employees or independent contractors. The bill is similar to legislation by the same name that was introduced last Congress.
IEC has yet to see the text of the bill. However, should its language resemble the 2011 version, IEC is concerned about its scope of impact and its burden on employers who follow the law or unintentionally misclassify workers. The previous bill would have notably established a presumption that an individual is an employee under the Fair Labor Standards Act (FLSA) if the employer violates the notification requirement and would also have required targeted audits by the Department of Labor (DOL) Wage and Hour Division of construction businesses, which could be costly to IEC members.
At the same time, the DOL has submitted a proposed Worker Classification Survey to the Office of Management and Budget for review and approval. The intent is to “collect information about employment experiences and workers’ knowledge of basic employment laws and rules so as to better understand employees’ experience with worker misclassification.”
The results of the survey could potentially be used toward the development of a rule to amend the FLSA and create a “Right to Know” disclosure requirement where employers must notify all workers in writing whether their employment status is that of an employee or independent contractor, why they are classified in that manner, and what benefits (if any) they are entitled to under the FLSA.
IEC will continue to monitor both the new legislation and DOL’s classification survey and strongly advocate for the business needs of all of our members.