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Independent Contractor Rules – A Significant Change May Be On The Horizon

Independent Contractor Rules – A Significant Change May Be On The Horizon

Date Published: 2010-11-01

There are two major pieces of legislation pending in Congress that employers should be aware of as both bills would significantly impact the classification of independent contractors and the tests that are applied for the purposes of determining who is an independent contractor.  One of the bills, which is the focus of this article, is the Employee Misclassification Prevention Act (“EMPA”), would amend the Fair Labor Standards Act of 1938 (“FLSA”) to require that an employer also keep records relating to independent contractors who perform services for it in addition to the existing requirement that employers maintain employee time and payroll records.

The second bill of interest, which is not the focus of this article, is the Fair Playing Field Act of 2010 (“FPFA”) which was introduced into Congress on September 16, 2010.  The FPFA will be discussed in next month’s article.

Why Change the Existing Classification Rules?

One of the primary reasons for EMPA is to clarify who is an employee.  Upon review of the Congressional hearing testimony, it becomes clear that one of the important factors driving the legislation is the undercollection of employment taxes.  Further, the legislative testimony cites another reason as being the deprivation of benefits to an individual who is misclassified as an independent contractor which includes:  failure to pay overtime, a lack of workers’ compensation benefits, if injured, undercontribution to the Social Security fund and Medicare insurance fund and other ancillary benefits.

Keep in mind that from a tax collection perspective, it is far more efficient to collect employment taxes through an employer than it is through an individual.

Impact of EMPA on Employers

Among other requirements, if EMPA passes as drafted an employer would be required to provide a notice to every individual who is classified as an employee or as a non-employee (independent contractor).[1]  The notice would have to include all of the following:

  • Whether the employee is classified as an employee or a non-employee.
  • The address and telephone number for the applicable local office of the U.S. Department of Labor (“DOL”).
  • The following statement:

Your rights to wage, hour and other labor protections depend upon your proper classification as an employee or a non-employee.  If you have any questions or concerns about how you have been classified or suspect that you may have been misclassified contact the U.S. Department of Labor.

Penalties Under EMPA

EMPA specifically provides that misclassification, in and of itself, would be a violation of the FLSA.  Currently, misclassification, in and of itself, is not a violation of the FLSA.  EMPA would add penalties that could be imposed against an employer for a misclassification violation – a significant change.

Any employer employing individuals in Florida that has questions regarding worker classification issues is urged to contact competent legal counsel regarding such matters.  In addition to federal law, State law also impacts whether an individual qualifies as an independent contractor.

A note to the reader:  This article is intended to provide general information and is not intended to be a substitute for competent legal advice.  Competent legal counsel should be consulted if you have questions regarding compliance with the law. 

Questions regarding the content of this column or past columns may be e-mailed to Christina Harris Schwinn atchristinaschwinn@paveselaw.com.  To view past columns written by Ms. Schwinn please visit the firm’s website atwww.paveselaw.com.  Ms. Schwinn is a partner and an experienced employment and real estate law attorney with the Pavese Law Firm, 1833 Hendry Street, Fort Myers, FL 33901; Telephone:  (239) 336-6228; Telecopier:  (239) 332-2243.