Government Dedicates $14 Million to Fight Worker Misclassification in 2015

By DEBBIE FLEDDERJOHANN, President of Top Echelon Contracting

Worker Misclassification will once again be a focus of the Obama administration, and the stakes are only getting higher for companies that misclassify workers as 1099 independent contractors (ICs) when they should be W-2 employees.

The government has dedicated $14 million of the 2015 Fiscal Year Budget to the Department of Labor (DOL) for preventing and detecting the misclassification of workers as ICs.  Additional investigators will be hired with $4 million of the funds, but the bulk of the money ($10 million) will fund grants to help individual states identify misclassification and recoup unpaid taxes.

This is an extension of the DOL’s Misclassification Initiative, in which the agency has signed Memorandums of Understanding with the IRS and several states agreeing to share information about possible misclassification.

Secretary of Labor Thomas E. Perez stated that since the Initiative was launched, the DOL has already collected over $18.2 million in back wages for more than 19,000 workers, which is a 97% increase in back wages.

As a recruiter, you may have received pressure from both companies and candidates to use the IC classification because of the tax advantages it affords both parties. We expect it to become even more popular with clients when the employer mandate of the Affordable Care Act (ACA) kicks in.

But the proper classification is not up to the client, candidate, or recruiter. It is determined by the IRS guidelines, which can be viewed by clicking here.

The DOL’s partnership with the IRS and several states under the Misclassification Initiative has significantly increased the financial risks involved with misclassification. Companies can now be hit with fines, penalties, back taxes, back wages, etc., from several agencies at once.

You can help your clients avoid this fate by encouraging them to audit their workforce against the IRS guidelines. And if they determine that some workers are misclassified, you can offer to convert those ICs to W-2 employees and outsource their employment to a contract staffing back-office.

This allows your clients to avoid the administrative and financial burdens associated with the employment of workers without the risks involved with making them ICs.

For more information about this important issue, read this recent article in our Contracting Corner newsletter.
(Dislaimer: This article is for informational purposes only and should NOT be considered legal advice.)