PFederal Lawmakers Plan Severe Crackdown on Employee MisclassificationPremium Advisories - ASTA

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Federal Lawmakers Plan Severe Crackdown on Employee Misclassification

April 30, 2010

New legislation introduced late last week is expected to greatly raise the stakes for businesses that misclassify independent advisors

The Employee Misclassification Prevention Act would amend the Fair Labor Standards Act (FLSA) to require employers to keep records on their workers, and notify them of their employment or independent advisor classification and their right to challenge that classification. Under the legislative initiative, a worker would be presumed an employee if the business does not satisfy the bill’s record-keeping or notification requirements.

In an unprecedented move, the bill allows for an employer to be charged with a federal offense if it “fail[s] to accurately classify an individual as an employee.”

In its current form the legislation would implement the following measures:

  • raise the penalties for misclassification - up to $5,000 per employee for repeat or willful offenders and up to $,1,100 per employee for first time violations;
  • amend the Social Security Act by compelling state unemployment insurance agencies to conduct audits on companies that are misclassifying employees as independent advisors, and to submit quarterly reports to the Secretary of Labor which describe the results of the audits;
  • require states to establish administrative penalties for misclassifying employees, or paying unreported wages to employees without proper recordkeeping, for unemployment compensation purposes;
  • establish procedures for the Department of Labor (DOL) to monitor and assess the effectiveness of states in identifying worker misclassifications;
  • require the DOL to create an "employee rights web site" to inform workers about their federal and state wage and hour rights;
  • provide protections to workers who are discriminated against because they have sought to be accurately classified;
  • provide for coordination and referrals among the DOL and the Internal Revenue Service;
  • permit companies to continue to pay workers on a 1099 basis – provided they are not really employees misclassified as independent advisors.

Another pending legislative initiative is the Taxpayer Responsibility, Accountability, and Consistency Act of 2009. In addition to significantly increasing the amount of penalties associated with filing tax returns with incorrect information related to an employee’s status, the bill would revise the “safe harbor” provisions of the Revenue Act of 1978 making it more difficult for employers to designate certain workers as independent advisors for employment tax purposes.

Both forms of federal legislation would significantly increase operation costs for travel agencies. ASTA has allied itself and is advocating with a coalition of associations and business groups that have a common interest in mitigating the impact of both federal bills.

For more details, please see the full member alert or contact Colin Tooze, vice president of government affairs.

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