The Chief Financial Officer of Florida, Jeff Atwater, announced the arrest of Morton Seltzer, President of Navarre Industries Inc. for “intentionally and systematically under-reported his corporation’s true payroll to his insurance carrier, Guarantee Insurance Company… (who) allegedly established a shell corporation in 2011 under the name Hip Roof & Valley Inc. to intentionally violate the stop work orders and continue operating his construction business illegally.”
On March 2, 2012, the Taxpaying Employers Against Misclassification (TEAM) Coalition sent a letter to House Appropriations Chair Hal Rogers urging his committee to ensure that proper resources are allocated to eliminate the blatant misclassification of employees as independent contractors — specifically, $14 million that was included in President Obama’s 2013 budget for the U.S. Department of Labor to combat Misclassification. This figure includes $10 million for grants to States to identify misclassification and recover unpaid taxes and $4 million for personnel at the Labor Department’s Wage and Hour Division to investigate misclassification.
TEAM sent a similar letter to Atlanta’s Mayor Kasim Reed asking him to take strong action against contractors working at the Hartsfield-Jackson Atlanta International Airport who have been committing payroll fraud by listing their employees as independent contractors.
See the letter below.
March 2, 2012
The Honorable Hal Rogers
House Committee on Appropriations
H-307, The Capitol
Washington, DC 20515
Dear Chairman Rogers,
On behalf of the national coalition, Taxpaying Employers Against Misclassification (TEAM), representing thousands of employers, I am writing to request that you include $14 million in the Fiscal Year 2013 Labor, Health and Human Services, Education and Related Agencies Appropriations bill to detect and deter the misclassification of workers as independent contractors.
Taxpaying Employers Against Misclassification (TEAM) is a growing group of employers and employer organizations concerned about the issue of employee misclassification and payroll fraud. When employers incorrectly classify workers as independent contractors rather than full-time employees to avoid paying the required taxes and benefits, it is a form of payroll fraud and tax evasion. Furthermore, misclassification results in lost revenue for the Treasury and in the Social Security, Medicare, and Unemployment Insurance Trust Funds.
We strongly support the $14 million included in the President’s 2013 budget for the U.S. Department of Labor to combat Misclassification, including $10 million for grants to States to identify misclassification and recover unpaid taxes and $4 million for personnel at the Labor Department’s Wage and Hour Division to investigate misclassification. As employers who correctly classify their workers and end up losing millions of dollars in business to employers who misclassify their workers as independent contractors, we know first hand how important it is for states and the Department of Labor to have the tools they need to curb this widespread abuse.
Again, we ask that you include $14 million in the Fiscal Year 2013 Labor, Health and Human Services, Education and Related Agencies Appropriations bill to detect and deter the misclassification of workers as independent contractors.
Taxpaying Employers Against Misclassification (TEAM)
On January 5th the Taxpaying Employers Against Misclassification (T.E.A.M.) wrote a letter to Atlanta’s Mayor Kasim Reed asking him to take strong action against contractors working at the Hartsfield-Jackson Atlanta International Airport who have been committing payroll fraud by listing their employees as independent contractors.
As part of a new “Fresh Start” program initiated by the Internal Revenue Service employers who are currently, or have been misclassifying their workforce can now voluntarily come clean for a “minimal payment” that will cover their past payroll tax obligations.
The IRS seem to be slowly eliminating any excuse employers might make when misclassifying their workforce to avoid paying their appropriate tax obligations.
Labor secretary, IRS commissioner sign memorandum of understanding to improve agencies’ coordination on employee misclassification compliance and educationPosted: September 19, 2011
Secretary of Labor Hilda L. Solis today hosted a ceremony at U.S. Department of Labor headquarters in Washington to sign a memorandum of understanding with the Internal Revenue Service that will improve departmental efforts to end the business practice of misclassifying employees in order to avoid providing employment protections. In addition, labor commissioners and other agency leaders representing seven states signed memorandums of understanding with the department’s Wage and Hour Division and, in some cases, its Employee Benefits Security Administration, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs and Office of the Solicitor. The signatory states are Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington. Secretary Solis also announced agreements for the Wage and Hour Division to enter into memorandums of understanding with the state labor agencies of Hawaii, Illinois and Montana, as well as with New York’s attorney general.
The memorandums of understanding will enable the U.S. Department of Labor to share information and coordinate law enforcement with the IRS and participating states in order to 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.
“We’re here today to sign a series of agreements that together send a coordinated message: We’re standing united to end the practice of misclassifying employees,” said Secretary Solis. “We are taking important steps toward making sure that the American dream is still available for all employees and responsible employers alike.”
“This agreement takes the partnership between the IRS and Department of Labor to a new level,” said IRS Commissioner Doug Shulman. “In this new phase of our relationship, we will work together more efficiently to address worker misclassification issues, and better serve the needs of small businesses and employees.”
Business models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal, unless they are used to evade compliance with federal labor laws – for example, if an employee is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law. In addition, misclassification can create economic pressure for law-abiding business owners.
These memorandums of understanding arose as part of the department’s Misclassification Initiative, which was launched under the auspices of Vice President Biden’s Middle Class Task Force with the goal of preventing, detecting and remedying employee misclassification.
The mission of the U.S. Department of Labor is to foster, promote and develop the welfare of the wage earners, job seekers and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights.
Connect with DOL at http://social.dol.govhtt p://twitter.com/usdol http://www.facebook.com/departmentoflaborhttp :// http://www.youtube.com/usdepartmentoflaborhttp ://social.dol.gov/blog/ http://www.flickr.com/photos/52862363 @N07/
U.S. Department of Labor news materials are accessible at http://www.dol.gov . The information above is available in large print, Braille, audio tape or disc from the COAST office upon request by calling 202-693-7828 or TTY 202-693-7755.
SOURCE U.S. Department of Labor
by Susan Gross Sholinsky, EpsteinBeckerGreen
In light of a number of aggressive tactics being pursued by the federal and many
state governments to challenge companies’ designations of workers as
“independent contractors” rather than “employees,” you should ensure that you are
making such designations properly. State governments have been using various
methods for enforcing proper classification of workers. For example, several states
(particularly New York, which has created a multi-regulatory agency joint task force)
have initiated both random and targeted audits of apparent worker misclassification.
Misclassification can be costly, so companies are urged to review their worker classifications at regular intervals.
We have seen unemployment insurance claims brought not only by contractors arguing that they
should have been classified as employees (and are, therefore, eligible for unemployment
insurance), but also by the State of New York on behalf of “all those similarly situated” to the
In other words, New York employers may find themselves faced not with one
unemployment insurance proceeding based on an allegedly misclassified contractor, but two –
the second being brought by the New York State Department of Labor (“NYSDOL”) on behalf of
other workers who are allegedly “similarly situated” to the worker claiming he/she has been
Whichever way you may be targeted, you should be aware that both the federal and state
governments have been focusing on worker misclassification – many state governments have
established task forces to address the issue, as noted above with respect to New York State.
The federal government has also proposed several new laws and rules pertaining to this issue.
Governments generally have a dual purpose: (i) to “protect” workers, and (ii) to recoup
employment taxes and unemployment insurance premiums to increase government coffers.
So what should you do?
As you may be aware, several legal standards and tests are used by the courts and applicable administrative bodies to determine whether a worker is actually an
“employee” (and not a contractor). However, the level of control that a company has over the
worker regarding the means and manner of the work, rather than just an interest in the finished
product, will generally be the best predictor of whether he or she will be deemed an employee, if
- Is the worker required to work on the company’s premises?
- Must the worker perform services during the company’s business hours?
- Does the worker use the company’s equipment and have a company e-mail address, phone extension, or business card?
- Can the term of the relationship be terminated immediately for poor performance or other reasons?
If the answers to the questions above are “yes,” then the worker may be deemed an employee,
On the other hand, if many of the answers to the questions below are “yes,” the
worker probably has been properly classified as a contractor:
- Is the worker free to perform services for other companies during the term of the relationship with the company?
- Does he/she use his/her own equipment (laptop, computer software, tools, etc.)?
- Does the contractor work on his/her own schedule?
- Is the work performed off the company’s premises?
- Does he/she advertise his/her services to others (whether on the Internet, in the phone book, or otherwise)?
This document has been provided for informational purposes only and is not intended
and should not be construed to constitute legal advice. Please consult your attorneys in
connection with any fact-specific situation under federal law and the applicable state or
local laws that may impose additional obligations on you and your company. © 2011
Epstein Becker & Green, P.C.
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