As part of an effort to tighten up on companies that misclassify employees as independent contractors, the U.S. Dept. of Labor is considering proposing a rule that would set additional record-keeping and notification requirements for employers concerning their workers' status.

Deputy Labor Secretary Seth Harris told a Senate hearing on June 17 that some employers deliberately misclassify workers as independent contractors or "leased" or outsourced workers and can gain an advantage in the market over competitors that adhere to the law.

Harris said the department's Wage and Hour Division is mulling a proposed regulation that would require companies to carry out a written analysis of a worker's status, disclose that status to the worker and keep a record of the analysis in its files."

"The goal is to create transparency in employment relationships for both Parties," Harris said in his prepared testimony before the Senate Health, Education, Labor and Pensions Committee.

Committee Republicans contended that the vast majority of employers comply with worker-classification requirements and said the proposed additional paperwork would be a burden to those companies. But Harris said the forms would not take much time to fill out.

The hearing, held by the Health, Education, Labor and Pensions Committee, focused on a bill introduced by panel member Sherrod Brown (D-Ohio) that would crack down on misclassification of workers.

Among other things, Brown's bill, introduced in April, would state that misclassifying workers would be a violation of the Fair Labor Standards Act. Harris noted that misclassification alone is not currently a violation of the FLSA or most other labor statutes under DOL's purview.

Brown's bill also would increase penalties for companies that misclassify workers; and require employers to notify each workers what their classification is.

The measure is supported by committee Chairman Tom Harkin (D-Iowa). He said, "Over the past few years, it has become clear that a few unscrupulous employers are...intentionally misclassifying [employees] as 'independent contractors' to gain an advantage over their law-abiding competitors."

Harkin added, "An employer that misclassifies its workers may be able to outbid employers complying with the law--I'm told sometimes by as much as 30%."

But Brown's bill has only seven co-sponsors and Republicans on the committee made clear that they oppose the measure.

The panel's top Republican, Mike Enzi (Wyo.) said that he thinks the bill "could be called the accountants and auditors employment program."

Enzi said he agrees that there are "a few unscrupulous employers out there that are taking advantage of the system and they should be caught." But he added that the proposed legislation "is going to penalize the 97% that are doing the right thing."

Sen. Johnny Isakson (R-Ga.) warned against harming companies that are complying with the law He said, "We need to be very careful not to demonize people who are doing it right."

Brown noted the partisan split on the committee and acknowledged, "I know this bill faces an uphill battle." But he said he was willing to work on issues raised by critics of the bill.

Nevertheless, with the short congressional session this year, and no movement so far on the bill, it is at best a long shot for passage before the current Congress ends.

Besides the regulatory moves, Harris said the Labor Dept.'s proposed 2011 budget seeks increased spending on enforcement and for grants to states to help them deal with misclassification in Unemployment Insurance programs.

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