As part of an effort to crack down on companies that misclassify employees as independent contractors, the U.S. Dept. of Labor is working on a proposed rule that would set additional record-keeping and notification requirements for employers concerning their workers’ status.
Deputy Labor Secretary Seth D. Harris testified during a June 17 Senate Health, Education, Labor and Pensions Committee hearing that some employers deliberately misclassify employees as independent contractors, or “leased” or outsourced workers, and can gain an advantage in the market over law-abiding competitors.
Harris said the department’s Wage and Hour Division is mulling a proposed regulation that would require a company 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.
But committee Republicans contended a large majority of employers comply with worker-classification requirements and said the proposed additional paperwork would be a burden to those companies. However, Harris said filling out the forms would not take much time.
In addition to the regulatory activity, Harris said the Labor Dept.’s proposed 2011 budget seeks increased spending for Wage and Hour Division enforcement and for grants to states to help them deal with misclassification in unemployment insurance programs.
The committee’s hearing focused on a bill introduced in April by panel member Sherrod Brown (D-Ohio) that aims to crack down on misclassification of workers. Brown’s bill would make misclassifying workers a violation of the Fair Labor Standards Act (FLSA). Harris noted that misclassification alone is not currently a violation of the FLSA or most other statutes under the department’s purview. The bill would boost penalties for companies that misclassify workers and require employers to notify each worker what their classification is.
Committee Chairman Tom Harkin (D-Iowa), who co-sponsored Brown’s measure, 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 they oppose the measure. Sen. Mike Enzi (Wyo.), the panel’s top GOP member, said he thinks the bill “could be called the ‘accountants and auditors employment program.’ ”
Enzi said there are “a few unscrupulous employers out there that are taking advantage of the system, and they should be caught.” But he added that Brown’s bill “is going to penalize the 97% that are doing the right thing.”
Brown acknowledged, “I know this bill faces an uphill battle.” However, he said he was willing to work on issues raised by critics of the bill. Nevertheless, with little time left in the legislative session and no movement so far on the measure, it is at best a long shot for passage before the current Congress ends.
The proposal would require awritten analysis of a worker’s statusand disclosure of that information to the worker.