Employee Classification: Employers Must Get It Right Or Face Costly Penalties

Earlier this year, the Louisiana Workforce Commission (LWC) and the Wage and Hour Division of the U.S. Department of Labor (DOL) signed a Memorandum of Understanding to exchange information received by the agencies. Louisiana became the 13th state to agree to exchange information and coordinate enforcement efforts with the DOL in furtherance of what has been called the “DOL’s Misclassification Initiative.”

The establishment of this collaborative relationship prompted action from the Louisiana legislature through the enactment of LSA-R.S. 23:1711(G), which empowers the Administrator of the LWC to conduct investigations and assess administrative penalties against employers for misclassifying workers as independent contractors.

An employer should be wary of the potential risks associated with misclassifying an employee as an independent contractor because it may not be paying the proper overtime compensation, FICA and unemployment insurance taxes, or workers’ compensation premiums. After June 30, 2013, and subsequent to the issuance of a written warning by the Administrator, if an employer fails to properly classify an individual as an employee and fails to pay the contributions required by law, then, in addition to any contributions, interest, and penalties otherwise due, the Administrator may assess administrative penalties of up to $500 per worker. Each employee so misclassified constitutes a separate offense.  Other sanctions may include imprisonment for up to 90 days and the prohibition from contracting, directly or indirectly, with any state agency or political subdivision of the state for three years. Employers may request a hearing to contest an adverse determination by the Administrator.

According to LSA-R.S. 23:1711(G)(4), employers are now required to display a poster provided by the LWC “in a prominent and accessible location at each of its business premises.” This poster outlines the responsibilities of independent contractors to pay taxes as required by federal and state law, the penalties for employee misclassification, and contact information for individuals to file complaints regarding employment classification, among other information. To download a copy of this poster, including a Spanish version, you can visit the LWC website.

Note: This article was published in the December 2012 issue of the Louisiana eAuthority.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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