As I discussed earlier, the misclassification of employees as independent contractors is all too common. The practice of improperly classifying employees as independent contractors costs workers and governments millions of dollars every year. Independent contractors are responsible for the employer and employee portions of payroll taxes and independent contractors are not covered by many employee protections under Federal law like Title VII of the Civil Rights Act of 1964, the Fair Labor Standards Act, and the Family Medical Leave Act to name a few. Independent contractors may not be covered by state laws like unemployment insurance and workers compensation.
Senators Bob Casey (D-PA), Tom Harkin (D-IA), and Sherrod Brown (D-OH) introduced the Payroll Fraud Protection Act of 2013 (S. 1687) on 11/12/13.
The bill requires employers to classify workers accurately as employees or non-employees and notify each new worker of his or her classification as an employee or non-employee, together with information concerning their legal rights. Crucially the bill has anti-retaliation protections making it illegal to discharge or otherwise discriminate against an individual who has opposed any practice, or filed a complaint or instituted any proceeding related to the Act. This means, for instance, that an independent contractor who complains that they have been wrongly classified can bring a lawsuit if their employer fires them for complaining.
The bill also substantially increases the damages owed when an employer misclassifies an employee as an independent contractor and then fails to pay that employee overtime or minimum wage. Currently overtime and minimum wage violations are punished by a liquidated damages provision. Under the Fair Labor Standards Act, employers who fail to pay minimum wage or overtime when it is accrued must pay liquidated damages in an amount equal to the unpaid overtime and/or minimum wage in addition to the amount owed in unpaid overtime and/or minimum wage . (29 USC 216(b)). The bill as introduced would double liquidated damages where the employer misclassified the employee and failed to pay overtime and/or minimum wage. This appears to mean that in those situations, the amount owed in liquidated damages would be two times the unpaid overtime and/or minimum wages.
Senator Casey told the Senate Subcommittee hearing – Payroll Fraud: Targeting Bad Actors Hurting Workers and Businesses misclassifying employees as independent contractors is “a problem cheating workers, employers, and taxpayers.” Among other problems created by misclassification, Casey explained, is independent contractors are not entitled to “basic safeguards” such as workers’ compensation and unemployment. This creates an “uneven playing field” for law-abiding businesses that are forced to bid against companies that do not incur the same labor costs.
Other panelists at the hearing presented studies illustrating the problems of misclassification. One panelist referenced a study commissioned by the DOL in 2000 which found that up to 30% of employers misclassify their employees as independent contractors, and that various state studies indicate this number could be as high as 47 percent. The panelist also mentioned a 2009 study conducted by the Government Accountability Office (GAO) estimating independent contractor misclassification abuses resulted in a loss of federal revenues of $2.72 billion in 2006.
The Payroll Fraud Protection act creates critical new safeguards for employee who have been misclassified as independent contractors. Unfortunately, the GOP controlled House is unlikely to allow this bill to be brought to the floor, let alone pass the bill into law. If your employer has classified you as an independent contract it might be worth speaking to an attorney in your jurisdiction about whether you are misclassified. Under current Federal law misclassified independent contractors still have rights and remedies. If you are in Georgia contact attorney Benjamin Kandy.