September 20, 2011
IRS and DOL each have a stake in preventing the misclassification of workers as independent contractors, rather than employees. From IRS’s
perspective, the misclassification of workers results in lost employment taxes and retirement plan qualification issues. From DOL’s perspective, it
results in the violation of employee protections, such as wage and hour laws and contributions to social security. Businesses that properly classify
workers as employees also are disadvantaged by businesses that save money by misclassifying workers as independent contractors.
According to the DOL news release on the MOU, labor commissioners and other agency leaders representing Connecticut, Maryland, Massachusetts,
Minnesota, Missouri, Utah and Washington signed memoranda of understanding with DOL’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 state labor agencies of Hawaii, Illinois and Montana, as well as New York’s attorney general, also will be entering into memoranda of understanding
In announcing the signing of the memoranda, Secretary of Labor Solis stated, “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.”
The MOU between IRS and DOL is the latest in a series of efforts to curb worker misclassification that date back to 1978, when Section 530 of the
Revenue Act of 1978 was enacted to provide employers with a safe harbor on worker classifications until Congress addressed the issue. While some
legislation has been enacted since 1978 that addresses certain aspects of the worker classification issue, Congress has yet to address the issue in a
comprehensive manner. This is largely due to it being a difficult issue that does not lend itself to a simple legislative fix.
For other articles on worker classification, see:
Adjunct Professor Held an Employee; Teaching Expenses Subject to 2% Floor
Obama Administration's Revenue Proposals Address Worker Misclassification
The Department of Labor and IRS Continue to Examine Worker Classification Issues
White House Backs Worker Classification Bill
Proposed Federal Legislation Seeks to Remedy and Penalize Worker Misclassification
NY Legislation Would Presume Construction Workers are Employees
Proposed Legislation Likely to Classify More Workers as Employees
Legislation Proposed to Modify Rules Regarding Employers' Classification of Individuals as Independent Contractors