Five year plans are nothing new -- they've been all the rage since 1928 and the favored mode of strategic, centralized planning for all your favorite well-known bureaucracies. But while Five Year Plans are a dime a dozen these days, the latest one to hit the newswire -- this one from the United States Department of Labor -- has businesses sitting up and taking notice.
The DOL just released their strategic plan through 2016, which targets worker misclassification as a top priority for the next five years. Employee misclassification is what happens when a business wrongly classifies and pays workers as independent contractors (generally via a Form 1099) rather than hiring the workers as actual employees (reported on a Form W2). The 1099 versus W2 question may seem like a technicality, but the difference for workers, for the business, and for government tax authorities is tremendous. Don't be fooled by the friendly, colorful cover -- this is serious business.
The Wage and Hour Division of DOL will be spearheading much of the compliance crackdown:
"WHD will be a key partner in a joint Department of Treasury-Department of Labor initiative to detect and deter the misclassification of employees as independent contractors and to strengthen and coordinate federal and state efforts to enforce labor law violations arising from misclassification. Individuals wrongly classified as independent contractors are denied access to critical benefits and protections – such as family and medical leave, overtime, minimum wage and unemployment insurance – to which they may be entitled as regular employees. Employee misclassification also generates substantial losses to the Treasury and the Social Security, Medicare, and Unemployment Insurance Trust Funds."
Performance goals in the Five Year Plan from the Department of Labor aims for as much as 90% compliance by 2016 in industries considered to be most commonly in violation of worker classification compliance, as such:
"A number of recent studies conducted by worker protection organizations, researchers on behalf of state governments, and DOL’s Employ-ment and Training Administration suggest that misclassification – while occurring in many industries – is more prevalent in several high-risk industries: construction; janitorial; home health care; child care; transportation and warehousing; meat and poultry processing; and other professional and personnel service industries. The construction industry, in particular, is cited in each of the studies as rife with employee misclassification. As indicated above, WHD will raise its directed investigation level and increase its presence in these key industries and will target employers who are identified as having misclassified em-ployees or groups of employees."
And lest you think this is an unfunded mandate, the DOL has already secured the funding in the 2011 Federal Budget -- see our blog post on the Obama administration budget here.
It's always a good time for organizations in every industry to perform an independent contractor audit and review worker classifications internally before the government takes their turn. Independent contractor compliance is a top focus at both the state and federal layers of government, and the penalties for violating the law are daunting.
Avid followers of the government's pursuit to crack down on the issue of worker misclassification are already familiar with Secretary of Labor Hilda Solis' determination to enforce the law.
Several months ago in a DOL press release Secretary Solis was quoted as saying,
"One of my goals as Secretary of Labor is to secure minimum and overtime wages and to help middle class families remain in the middle class. Working on the issue of misclassification is key to attaining those goals because misclassification of employees as independent contractors deprives employees of critical workplace protections and employment benefits to which they are legally entitled. I look forward to working with the Congress to address the important issue of misclassification of workers.
"The Department of Labor is working with the Vice President's Middle Class Task Force and the Department of Treasury on a multi-agency initiative to develop strategies to address this issue. The administration's budget request for fiscal year 2011 includes $25 million for the Department of Labor as part of this initiative, including $12 million for increased enforcement of wage and overtime laws in cases where employees have been misclassified.
"The Wage and Hour Division is currently considering how to best target its FY 2011 enforcement efforts and is emphasizing misclassification in its ongoing FY 2010 enforcement strategy. The department is also exploring all possible options for addressing this problem, including ways to provide better guidance to both workers and employers, and to increase information sharing between Department of Labor agencies and the states that are also working on this issue."
Bottom line? Don't wait for the WHD to knock on your door with a 1099 compliance audit. Check your worker classification process, and if needed, consult with an Independent Contractor Engagement Specialist to develop solutions for the proper classification and engagement of your most valuable contract talent categories.
