Posted by: Business Law EBooks | September 23, 2011

Ending Illegal Business Misclassification of Employees

Labor secretary, IRS commissioner sign memorandum of understanding to improve agencies’ coordination on employee misclassification compliance and education

11 state agency leaders also sign, agree to memorandums of understanding

WASHINGTON — Secretary  of Labor Hilda L. Solis today hosted a ceremony at U.S. Department of Labor  headquarters in Washington  to sign a memorandum of understanding with the Internal Revenue Service that  will improve departmental efforts to end the business practice of misclassifying  employees in order to avoid providing employment protections. In addition, labor  commissioners and other agency leaders representing seven states signed memorandums  of understanding with the department’s Wage and Hour Division and, in some cases, its Employee Benefits Security Administration,  Occupational Safety and Health Administration, Office of Federal Contract  Compliance Programs and Office of the Solicitor.  The signatory states are Connecticut, Maryland, Massachusetts, Minnesota,  Missouri, Utah  and Washington.  Secretary Solis also announced agreements for  the Wage and Hour Division to enter into memorandums of understanding with the  state labor agencies of Hawaii, Illinois and Montana, as  well as with New York’s  attorney general.


The  memorandums of understanding will enable the U.S. Department of Labor to share information and coordinate law enforcement with  the IRS and participating states in order to level the playing field for  law-abiding employers and ensure that employees receive the protections to  which they are entitled under federal and state law.


“We’re  here today to sign a series of agreements that together send a coordinated  message: We’re standing united to end the practice of misclassifying  employees,” said Secretary Solis. “We are taking important steps toward making  sure that the American dream is still available for all employees and  responsible employers alike.”


“This agreement takes the  partnership between the IRS and Department of Labor to a new level,” said IRS  Commissioner Doug Shulman.  “In this new  phase of our relationship, we will work together more efficiently to address worker misclassification  issues, and better  serve the needs of small businesses and employees.”


Business  models that attempt to change, obscure or eliminate the employment relationship  are not inherently illegal, unless they are used to evade compliance with  federal labor laws  —  for example, if an employee is misclassified as an  independent contractor and subsequently denied rights and benefits to which he or  she is entitled under the law. In addition, misclassification can create  economic pressure for law-abiding business owners.


These  memorandums of understanding arose as part of the department’s  Misclassification Initiative, which was launched under the auspices of Vice  President Biden’s Middle Class Task Force with the goal of preventing,  detecting and remedying employee misclassification.


The  mission of the U.S. Department of Labor is to foster, promote and develop the  welfare of the wage earners, job seekers and retirees of the United States; improve working  conditions; advance opportunities for profitable employment; and assure  work-related benefits and rights.


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