Bill would double penalties in employee misclassifications

Employers who use workers they classify as contract laborers, freelancers, casual workers, contract employees — or independent contractors by any other name — may want to monitor the progress of a new bill in the U.S. Senate.

Dubbed the Payroll Fraud Prevention Act of 2013, Senate bill 1687’s aim is to take another jab at employers who may be improperly classifying employees as non-employees.

This has become a cause celebre over at the U.S. Department of Labor, where suspicious minds are on the lookout for true employees who are being under-compensated due to misclassification.

Writing for his law firm’s blog, John E. Thompson, partner at Fisher & Phillips, warns that this bill, if enacted, would require employers to send a somewhat detailed notification to workers who are non-employees.

Failure to follow through would lead to substantial penalties, he writes. “S. 1687 would among other things make it a freestanding violation of the federal Fair Labor Standards Act ‘to wrongly classify an employee ... as a non-employee,’” he writes, taking language from the bill.

The bill “would require that an employer or other person subject to the FLSA both ‘accurately classify’ a worker as being either an employee or a ‘non-employee’ and give the individual written notice of this classification. Absent the notice, a worker would be presumed to be an employee; the presumption could be rebutted only ‘through the presentation of clear and convincing evidence,’” Thompson says.

The employer’s notice to workers covered by the bill would include the following:

  • Direct the individual to a U.S. Labor Department website also provided for in the bill;
  • The address and telephone number of the local USDOL office;
  • A prescribed rights-related statement.

Penalties for violations will be double the amount that had been assessed for similar Fair Labor Standards Act misclassification violations in the past, Thompson advises.

If an employer is found to be in violation under Senate bill 1687 of minimum-wage and/or overtime underpayments, “then the additional, equal amount normally imposed as FLSA liquidated damages for those violations would itself be doubled. Moreover, the bill provides for a civil money penalty of up to $1,100 as to each affected individual; the per-person maximum would rise to $5,000 in the case of a repeated or willful violation,” he says.

More alarming, Thompson notes, is that civil penalties would be in effect “simply because an individual was erroneously classified as a non-employee, because the classification was not done, or because the required notice was not given, without regard to whether any of these things also resulted in an FLSA minimum-wage or overtime violation.”

He notes that the DOL would be targeting “certain industries” where the classification issue has come up before.

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