Senate Bill Proposes to End Misclassification of Independent Contractors

The Senate Health, Education, Labor and Pension Committee is currently considering legislation introduced on April 8, 2011 intended to end misclassification of employees as independent contractors. Senate Bill 770 (S.770), known as the “Payroll Fraud Prevention Act” (“PFPA”), would amend and expand the Fair Labor Standards Act (“FLSA”) to include “non-employees” within the ambit of the FLSA minimum wage, hours and overtime protections. On its face, the PFPA is straightforward legislation, but the implications of some of its provisions are far-reaching and its activist approach conflicts with existing protections for companies that include independent contractors within their workforces.

The direct effect of S. 770, if enacted, will be to (i) require all employers to provide written notice to all employees and “non-employees” (i.e. independent contractors) of their status1 and refer the recipients to the U.S. Department of Labor (“DOL”) website for information about their rights, (ii) impose penalties of up to $5,000 for each misclassification, (iii) increase audits of companies in targeted industries, and (iv) increase referrals of perceived violations to the Wage and Hour Division from other divisions within the DOL.

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