Congress eyes employee misclassification

A Senate committee heard testimony for and against worker misclassification as Congress considers bills cracking down on the practice.

On June 17, the Health, Education, Labor and Pensions Committee heard, “Leveling the Playing Field: Protecting Workers and Businesses Affected by Misclassification.” Sen. Sherrod Brown’s (D-Ohio) bill, the Employee Misclassification Prevention Act, or S. 3254, was frequently discussed and House members are also considering a companion bill.

Chairman Sen. Tom Harkin cited Department of Labor statistics that estimate 30 percent of businesses misclassified employees as independent contractors. “That means the construction worker who falls and breaks his leg is denied workers’ compensation, and the truck driver who works 60 hours a week doesn’t receive the overtime pay his family deserves to help cover the rising costs of food and energy,” the Iowa Democrat said.

U.S. and state officials have investigated misclassification more in recent years, with industries such as trucking and construction drawing more scrutiny. This year, the U.S. Department of Labor hired more investigators to pursue misclassification and the Internal Revenue Service is working on a tax audit program partly aimed at improper misclassification of independent contractors.

Speakers who testified against Brown’s bill included Sen. Mike Enzi, who called it a “Washington (D.C.) special interest bill.” The Wyoming Republican agreed misclassification occurs but said it will penalize legal operations with more administrative work and costs, but not deter rogue businesses.

Seth Harris, DOL deputy secretary, said one study estimated employers can cut labor costs by 20-40 percent by misclassifying their employees as independent contractors. The DOL and the IRS have agreements with 39 states to improve information sharing and better detect tax and revenue losses from misclassification.

Catherine Ruckelshaus of the National Employment Law Project, testified trucking, construction and home health care are among industries law enforcement should target. State studies indicate misclassification is growing, including in California, where the number of unreported employees increased 54 percent from 2005 to 2007.

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State attorneys general have targeted FedEx Ground Package System in particular, alleging driver misclassification, she said.

The American Trucking Associations has described Brown’s bill, which they oppose, as increasing recordkeeping requirements for employers of independent contractors and upping penalties on businesses guilty of misclassification. 

They noted the bill, if passed, would not change the determining factors for independent contractor status or some safe harbor provisions.

Brown’s bill has seven co-sponsors, and its duplicate bill, HR 5107, has eight co-sponsors. Both bills were introduced and referred to committee April 22.

Ruckelshaus said the bills were a good start, but favored S. 2882, which Sen. John Kerry introduced last year. It would amend the federal tax code to modify the rules that allow a “safe harbor” for employers who misclassify employees as independent contractors and would permit the IRS to issue guidance on the subject, she said.

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