The Senate is considering Payroll Fraud Prevention Act which would impose significant penalties on contractors that misclassify their employees as independent contractors. The bill’s sponsors deem this practice payroll fraud and assert that employers that engage in payroll fraud evade tax laws and deprive workers of benefits and workers compensation protection.
This is the ninth independent contractor misclassification law introduced since 2007. Given the current discord in Congress, the chances of this bill passing do not appear great. Nevertheless, below are some of the noteworthy provisions of the bill.
The bill authorizes the Department of Labor’s Wage and Hour Division (WHD) to conduct audits in those industries in which employers are thought to be misclassifying workers. It also would require the Department of Labor to report to the WHD any misclassification concerns uncovered in other Department of Labor audits. Finally, the Department of Labor would be authorized to report violations to the Internal Revenue Service for investigation of potential tax violations.
Employers found to have violated this law could be subject to penalties of $1,100 fine per worker misclassification and $5,000 fine for repeat or intentional misclassification.
Employers would be required to provide all workers with a notice informing the worker that he or she is classified as an employee or independent contractor. This notice would have to be provided to all current and new workers. The notice must also contain contact information for the Department of Labor.
Although it is unlikely that the Payroll Fraud Prevention Act will pass, employers still have an obligation to classify their workers properly. State agencies and the WHD have been very active in looking for misclassified workers and employers would be well advised to review their independent contractor relationships to make sure they are well documented and that the classification is supported by the work the independent contractor actually does.