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Feds, states boost misclassification claims

Friday, May 06, 2011

Claims of employee misclassification are on the rise, due in large part to stepped-up audit and enforcement efforts by the federal government and states targeting employers that improperly treat employees as independent contractors.  The focus on how employers classify their workers is likely to increase as the Internal Revenue Service and Department of Labor carry out plans to audit thousands of companies – including small businesses – for possible misclassifications. What’s more, state officials, searching for ways to boost revenue, have also intensified investigations of state wage and hour laws.  “Down here in Texas, I’m seeing increased activity, and not just from the DOL and IRS,” said Russell D. Cawyer, a partner representing employers in labor matters in Kelly Hart & Hallman’s Fort Worth, Texas office. “It’s not just something that is happening on the federal level, but on the state level as well.” 

The IRS has begun what will be a three-year long auditing initiative targeting misclassification, including investigations of as many as 6,000 companies, large and small. In addition, the Labor Department has stepped up its efforts to pursue employers that misclassify employees as independent contractors.  In many cases, some lawyers charge, misclassification is no accident.  “It’s intentional what they are doing. Almost always it is,” said Frederic R. Abramson, a New York business and civil litigator who represents small businesses as well as employees.  Cawyer disagreed.  “My sense is that when you have a misclassification issue, it’s primarily due to the failure [by an employer] to appreciate the difference between the independent contractor and the employee relationship,” he said.  Regardless of the intent, there is a reason companies are so tempted to break out the independent contractor form: it can be a huge cost saver.  (click on link to read full story) 

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