Independent Contractor Compliance and the Boy Who Cried Wolf
Regular readers of this blog might think I’m “The boy who cried wolf,” or perhaps Chicken Little-always crying “The sky is falling”!
I write article after article warning you that enforcement of the independent contractor classifications is toughing up on both the local and national levels. I’ve been calling it the Perfect Compliance Storm for some time. I advise you to protect your company now because it is too late after the enforcement agency knock on your door. You think, “So far nobody’s knocked on my corporate door so he must be wrong”-right?
To make my point here are just a few excerpts from recent government press releases and current websites…
In California:
- California’s Department of Industrial Relations’ (DIR) website boasts of its creation of the Economic and Employment Enforcement Coalition (EEEC), defined as, “a partnership of state and federal agencies…collaborating to…educating….and conducting vigorous and targeted enforcement against labor law violators; and helping to level the playing field (a political cliché for increased compliance and revenue collection)…and restore the competitive advantage to law-abiding businesses and their employees.
The website goes on to say, “California needs stronger enforcement of the current labor laws.” Even though the website boasts, “For decades California has had some of the strongest labor and workforce safety laws in the country…”
- California’s Employment Development Department (EDD) website on misclassified workers states, “The state of our current economy makes it more important than ever to combat underground economies and provide a level playing field for California businesses (that cliché again).
In New York:
- New York’s State Department of Labor website advises individuals, “If you think an employer is committing fraud by misclassifying its workers or is committing violations of New York State laws related to the employment of workers, it is important that you let us know about it.” In a public hearing in January of this year the Chairman of New York’s Senate Labor Committee, George Onorato, D-Queens, said, “The Senate committee is here to begin to tackle a problem that has been around for a long time in our state, (employee misclassification)…businesses that follow the rules are placed at an unfair advantage…” (sounds like he wants to level the playing field). In replying to the idea of cutting any resources involved in investigating misclassification violations he said, “They make money for us…People are going to start realizing that they can get away with (misclassification if we cut resources)…”
At the federal level:
- In a press release issued last month the Obama administration announced that it has, “directed both the Treasury Department (IRS) and the Department of Labor to increase enforcement on companies that treat workers as independent contractors when their job duties are actually those of an employee.” The IRS has received an additional 4500 agents and the Department of Labor received an additional 100 investigators to support this effort.
- The IRS announced it will conduct 6000 employment tax audits in 2010 as a pilot to determine the extent of non-compliance.
- This past month, Senator John Kerry, D-Massachusetts, and Representative Jim McDermott, D-Washington, have both introduced almost identical bills that would greatly limit the current provisions of the Section 530 Safe Harbor and increase penalties against companies who misclassify workers.
- Commenting on those bills President Obama said he wants even stronger action to strengthen IC compliance. In a press release issued in February 2010, he has specifically asked Congress to enact tougher worker misclassification laws.
The examples go on and on and can be found in almost every state. The point is, you need to put your compliance house in order before they come knocking on your door. It’s too late after these forces have aligned against you…
Many new clients begin working with Collabrus by having us conduct an internal assessment of their current contingent workforce. This exercise is very similar to a government agency audit, except for our objective is to find and fix any problems with misclassified workers, NOT issue a tax bill and penalties!
Ive been misclassied as an independent contractor but treated as an employee in every aspect, by the IRS and FSLA. I work in the cable business “Larry the Cable guy” Every state acrross the USA has compainies like the one I worked for misclassifing its workers to cut costs and most if not all dont pay any taxes, im gulity of it, it was so simple, the company gives you a check and you cash it, make up some fake deductions and your getting money back, I worked 80 hours a week and was told what to do, how to do it and couldnt work for anyone else or id risk getting fired. There needs to be a mnajor task force in place to audit these companies and bring them into compliance. I was also hurt on the job with a serious back injury which has left me hurt for the rest of my life.. My website has all the info on my Federal case as it updates. Please visit to see the company I worked for the past 8 years.
Often both federal and state enforcement agencies become alerted to industry-wide IC compliance issues when enough individulas complain or there are civil class-action suits filed, which typically become public information. Also, it is not unusal for the attornies representing the class action plaintiffs to contact the IRS or state auditors (with their clients’ permission) and provide detailed informaiton for investigation. Most enforcement agencies will use the information to conduct audits or investigations. My guess is if this issue becomes big enough you will see this happen.