The proper classification of workers as independent contractors has been the subject of past articles. This has been important because improperly classification independent contractors may be owed back wages including overtime as independent contractors are not required to be pais in accordance with the Fair Labor Standards Act. In addition employers are liable for unemployment taxes and for the payment of the employer’s share of the FICA and Medicare tax. Lastly, employers may also have liability for benefits not provided to independent contractors.
In an effort to ease enforcement, the United States Department of Labor (the federal agency tasked with enforcing the federal wage hour laws and ensuring benefit compliance through ERISA) now has a formal agreement in place with the Internal Revenue Services and many states for the sharing of information concerning improperly classified independent contractors. This agreement will provide for the sharing of information relating to enforcement issues and is another reason to stress the importance of properly classifying workers as employees or independent contractors.
Improper worker classification comes to light in many ways, including when an independent contractor is terminated and files for unemployment compensation. After making an application with the appropriate state agency, it is determined that the employer did not report wages for the individual was properly classified as an independent contractor. If it is determined that the individual was improperly classified, unpaid employment taxes will be assessed. If the state in question is a signatory to the information sharing agreement, information on the employer will then be shared with the IRS (which has an interest in the collection of FICA and Medicare taxes as well as federal income tax withholdings) and with the Department of Labor to ensure that wages were appropriately paid to the individual.