Human Resource & Labor News
www.agc.orgMarch 27, 2013 / Issue No. 2-13
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On the Inside
Labor Relations
Union Representation in Construction Slips in 2012, While Earnings Rise
Laborersí International Vice President Rocco Davis Delivers Up-Beat Message to AGCís Union Contractors
New Proposal to Reform Multiemployer Retirement Plans Will Help Hard Hit Construction Industry
AGC Member Testifies at House Pension Hearing
NLRB Recess Appointment Challenge Likely Headed to Supreme Court
NLRB Holds that Dues Check-Off Survives Contract Expiration
Employers Required to Use New Form I-9 Beginning on May 7
Independent Contractors
IRS Expands Amnesty Program for Identifying Misclassified Independent Contractors; Still Risky
Federal Contractors: Beware of OFCCPís New Compensation Audit Procedures
Leave and Benefits
Labor Department Issues New FMLA Regulations; New Forms & Poster Required
Whistleblower Complaint Procedures for Affordable Care Act Announced
Independent Contractors
IRS Expands Amnesty Program for Identifying Misclassified Independent Contractors; Still Risky

On Feb. 27, the Internal Revenue Service (IRS) announced the expansion of its Voluntary Classification Settlement Program (VCSP), which allows eligible employers the opportunity to participate in a low-cost option for correcting the status of misclassified workers from independent contractors to employees for future tax years.  The program requires a payment of just over one percent of the wages paid to the reclassified worker for the past year with no interest, penalties, or risk of a future audit related to the workers in question for any prior years.  While this option may seem enticing to employers, it does not come without risks.  The program offers employers a safe harbor from further penalties by the IRS, but it does not provide a safe harbor from investigation or penalties by other government agencies.  Details regarding the program’s modifications can be found on the IRS website.

In 2011, the U.S. Department of Labor (DOL) signed a memorandum of understanding (MOU) with the Internal Revenue Service (IRS) that is aimed at improving departmental efforts to end the misclassification of workers as independent contractors.  The MOU will enable DOL and the IRS to share information and coordinate law enforcement in what DOL says will “level the playing field for law-abiding employers and ensure that employees receive the protections to which they are entitled under federal and state law.”

As a result of the MOU, employers that participate in the program may very well be providing the best evidence for alleged wrongdoing, which may or may not be determined by the investigating agency as willful.  Again, the investigating agencies include several sub-agencies within DOL and numerous state agencies which will now share information between each other and all have the authority to independently audit a company’s practices.  While the VCSP program seems appealing, participation may have far-reaching and unintended consequences for even well-intentioned employers.

In addition, state labor commissioners and other agency leaders have also signed MOUs with DOL.  These agreements were established as a part of DOL’s Misclassification Initiative aimed at restricting the lack of access to various employee benefits and protections to which workers may be entitled as regular employees, but not as independent contractors, while simultaneously curbing the losses of Social Security, Medicare and unemployment insurance taxes that employers are required to pay for employees.

As a result of the initiative, employers are urged to conduct self-audits to evaluate the level of vulnerability should a worker or the government claim a worker’s status as an employee instead of an independent contractor.  Questions to consider include, but are not limited to, whether or not:

  •  the worker’s services are an integral part of the organization’s activities;
  • the worker has a significant investment in facilities or equipment;
  • the worker has an opportunity for profit or loss in a business sense;
  • the worker exercises the initiative, judgment and foresight of a business owner;
  • the working relationship is permanent or indefinite, rather than for a pre-determined time; and
  • the worker has meaningful control over the details of the work.

Upon completion of a self-audit, employers with misclassified workers are best advised to consult an employment attorney licensed to practice in the state before taking any action.

For assistance in determining a worker’s status as an employee or independent contractor, employers may use DOL’s e-Laws Advisor to help classify workers appropriately according to the Fair Labor Standards Act, a law that is enforced by DOL’s Wage and Hour Division.  For additional guidance on worker misclassification issues, AGC’s pre-recorded webinar series, “Advanced Issues about Worker Misclassifications: What Every Contractor Needs to Know” will help employers through the process of correctly identifying workers as employees or independent contractors as well as exempt or non-exempt and can be purchased from the AGC Bookstore.  Additional resources are available to AGC members and chapters on AGC’s Labor & HR Topical Resources webpage under the main category “Other Legal Issues” and subcategory “Independent Contractors.”

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