Washington State to work with Labor Department and IRS to crack down on employee wage violations
This is my site Written by CPorterEsq on September 19, 2011 – 8:26 am

Labor Secretary Hilda Solis has made increased enforcement of federal wage-and-hour laws a top priority since she took office in 2009. The department has focused on industries where so-called “wage theft” is considered a problem, including the hotel, restaurant, janitorial, health care, construction, and day care industries. Now the U.S. Labor Department is signing agreements to share information with nine states, including Washington, and the Internal Revenue Service as it gets even more aggressive in its program to crack down on businesses that cheat workers out of their hard-earned wages.

Sharing information will help Labor officials target businesses that improperly label workers as independent contractors when they should be classified as an employee. Misclassifying a worker as a non-employee deprives the worker of minimum wage and overtime pay. It also lets companies avoid paying workers compensation, unemployment insurance and federal taxes.

The new information-sharing agreements will likely result in multiple fines for businesses that violate the law. In the past, a company might pay a single fine to a state agency for not making proper unemployment insurance payments. Under the new agreements, a state can share the information with the Labor Department, which can seek fines and penalties for federal wage violations too. The violation would also be reported to the IRS, which can go after the company for unpaid taxes.

How can I be sure I’ve classified my workers correctly?

Whether a worker is an independent contractor or an employee depends upon the relationship between the worker and the business. The facts that illustrate the relationship and demonstrate a worker’s classification generally fall into three categories – Behavioral Control, Financial Control, and the Type of Relationship.

Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done, through instructions, training, or other means.

Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:

  • The extent to which the worker has unreimbursed business expenses
  • The extent of the worker’s investment in the facilities used in performing services
  • The extent to which the worker makes his or her services available to the relevant market
  • How the business pays the worker, and
  • The extent to which the worker can realize a profit or incur a loss

Type of Relationship covers facts that show how the parties perceive their relationship. This includes:

  • Written contracts describing the relationship the parties intended to create
  • The extent to which the worker is available to perform services for other, similar businesses
  • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
  • The permanency of the relationship, and
  • The extent to which services performed by the worker are a key aspect of the regular business of the company

Keep in mind that no specific factor controls and often times the line between employee and independent contractor is grey. If you are unsure, an attorney can often help you identify what type of worker you have and additional steps you can take to protect yourself in an audit.

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