The IRS and Dept of Labor Have Teamed Up to Fight Employee Misclassification

Beth Dean 09.21.11
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The Internal Revenue Service (IRS) and Department of Labor (DOL) recently signed an agreement to coordinate with the other agency in enforcing compliance and education on employee misclassification. Said DOL Secretary Hilda Solis, “We’re here today to sign a series of agreements that together send a coordinated message: We’re standing united to end the practice of misclassifying employees.”

A result of the DOLs Misclassification Initiative, this partnership serves as a reminder for employers to be vigilant in properly classifying employees.

Misclassification can occur when someone is classified and paid as an independent contractor when he or she is, in fact, an employee. As a general rule, employers can ask themselves the following questions in determining whether a worker is an employee or an independent contractor:

  • Do you control the way the work is done (including hours, location, and rate of pay)?
  • Do you offer benefits to anyone in a similar position?
  • Do you furnish the worker with a workspace or any needed tools?
  • Is this person in a managerial or executive role with your company?
  • Are there others with similar duties at the company classified as employees?

If the answer to any of these is yes, then the worker is likely an employee; not an independent contractor.

What This Means to You, the Employer:
With this IRS and DOL partnership, an employee audit can easily branch into many areas, including tax withholding and payroll classifications. It is even more important to make sure your company is compliant with current employment laws. Nextep’s Human Resources professionals are educated in the intricacies of these laws and can offer case by case analysis and advisement, including file and recordkeeping requirements, job descriptions, overtime exemptions and pay, and independent contractor versus employee analysis.

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