Utah Partners with Federal Agencies to End Worker Misclassification
Faced with growing budget deficits, the federal government and many state governments, including Utah, have begun to crack down on employers who misclassify employees as independent contractors to avoid paying payroll taxes. President Obama's 2010 budget estimated that stricter enforcement efforts would yield an additional $7 billion in tax revenue over the next decade. To further that end, the federal government formed an Employee Misclassification Initiative to address the issue in 2010.
In September 2011, Labor Secretary Hilda L. Solis announced that the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) had signed an agreement with several states, including Utah, to increase information-sharing. The new initiative will effectively combat the problem and enforce federal employment and labor laws.
Misclassification Problem
Under federal law, the determination of whether a worker is an employee or independent contractors is made be reviewing the working relationship as a whole. The degree of control exercised by the employer is greater for an employee than an independent contractor.
According to the DOL, employees can be particularly vulnerable to misclassification in difficult economic times. This is because employees may be hesitant to challenge employment classification for fear of losing their jobs. As a result, employers may be able to avoid paying payroll taxes and workers' compensation insurance premiums for workers deemed to be independent contractors. Those classified as independent contractors are generally not entitled to employment benefits such as health insurance and paid holidays.
Details of the New Initiative
A team made of up of representatives from the DOL and IRS will engage in national outreach programs designed to clarify worker classification issues. The team will assist with press releases, education and training programs.
As a result of the new agreement, the DOL Wage and Hour Division will share inspection information with the IRS and the Utah State Taxing Commission when officials believe an employer has improperly classified employees. Then the IRS and the state agency can investigate whether the employer has complied with federal and state tax laws.
The agencies involved in the new initiative hope the partnership will result in more effective investigations of independent contractor misclassification. Utah businesses should review their worker classifications and consult a Utah business lawyer for advice regarding worker classification, if questions arise.
