Originally published in InsideCounsel.com - March 5, 2012.

Penalties for misclassifying employees as independent contractors could be severe

In one of the most noteworthy collaborations of 2011, the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) announced that they would join forces to combat worker misclassification. Specifically, the merging of resources of these powerful federal agencies is designed to crackdown on instances of employers misclassifying workers as independent contractors as opposed to employees.

Not content to go at it alone, as part of its misclassification initiative, the DOL also has begun entering into agreements with individual states to coordinate enforcement efforts. To date, the DOL has entered into agreements with California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington.

The collaboration resulted after a recent Government Accountability Office (GAO) report found that the IRS is losing billions of dollars due to misclassification. Similarly, a DOL report claimed that as many as 30 percent of employers misclassify workers. Although the government is investigating misclassifications across all industries, it appears that the construction industry is one of the main targets of investigation.

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