Our Human Resources Blog

Recently AOL terminated their relationship with thousands of freelance writers who they had classified as independent contractors. Some of the writers are now claiming they should have been classified as full time, internal employees.

According to the Department of Labor, tens of thousands of employers mistakenly misclassify workers as independent contractors. As a result, these workers are ineligible to receive certain benefits such as minimum wage, overtime, unemployment insurance and workers compensation. The corresponding states miss out on collecting millions of dollars of tax revenue each year.

For the past several years, both houses of Congress have introduced bills that would help toughen the laws on misclassification. Each year these bills have died in committees because of higher priorities.

This year another bill was introduced - The Payroll Fraud Prevention Act.  Different from previous ones, this bill is more aggressive and characterizes misclassification as “payroll fraud”!  

The Payroll Fraud Prevention Act expands the Fair Labor Standard Act and helps eliminate the “tax gap” that is created when employers misclassifies workers.  The bill takes a firm stance against employers and would:

• Require employers to keep records that accurately state whether each worker performing labor or services is an employee or non-employee
• Require employers to notify workers of their classification as an employee or non-employee
• Create penalties of up to $5,000 per worker for a violation of the notice requirements or for misclassifying an employee as a non-employee.
• Impose triple damages for willful violations of the minimum wage or overtime laws when an employer has misclassified a worker.
• Direct the DOL to conduct audits targeting industries with high rates of misclassification.

The bill would also provide protections to workers who are fired or otherwise discriminated against for trying to be reclassified as employees.

According to the bill’s sponsor, Ohio Senator Sherrod Brown- “Intentionally treating workers as subcontractors when they really are employees is payroll fraud: it cheats workers, taxpayers, and other businesses that play by the rules.”