Misclassifying employees as independent contractors continues to be on the radar of various regulatory agencies. According to the US Department of Labor (USDOL), $140,393 in back wages and an equal amount of liquidated damages totaling $280,786 are to be paid to 101 employees of Federal Verification Co. Inc., a Florida employer. Federal Verification prepares applications for businesses that seek to obtain federal contracts. Nearly $200,000 in wages and damages is due to inside salespeople who made less than the federal minimum wage of $7.25 per hour. A USDOL Wage and Hour Division investigation found that salespeople were misclassified as independent contractors, paid below the federal minimum wage, and denied overtime compensation for hours worked beyond 40 in a workweek. Some employees were also paid commissions that did not equal at least the federal minimum wage.
The misclassification of employees as independent contractors presents problems for affected employees, employers and the economy. Misclassified employees often are denied access to critical benefits and protection such as minimum wage, overtime, family and medical leave, workers’ compensation, and unemployment benefits. Employee misclassification generates substantial losses to the US Treasury and the Social Security and Medicare funds, as well as to state unemployment insurance funds. Misclassification also creates a competitive disadvantage for employers who comply with the law.
Misclassification has garnered much attention from North Carolina regulatory agencies and legislators. You can rest assured that this issue will be raised during the 2015 session of the North Carolina General Assembly. It should be noted that the USDOL and the Internal Revenue Service (IRS), through an interagency memorandum of understanding, are working together and sharing general information to reduce the incidences of misclassification of employees, reduce the tax gap and improve compliance with federal labor laws. This case is typical of those the USDOL may refer to the IRS.
For more information on the FLSA and other wage laws, go to http://www.dol.gov/whd.
If you have questions about using independent contractors, please contact our Advice and Resolution team at 919-878-9222 or 336-668-7746.