Significant Change Coming In U.S. Department of Labor Audits Involving Independent Contractors

July 2013

The 2014 budget for the U.S. Department of Labor was released on April 10, 2013, and it has troubling overtones for employers. By evaluating this very telling budget information, it becomes clear that the U.S. Department of Labor is unfortunately going to change the way it organizes its enforcement activities aimed at worker classification (i.e., whether certain workers are independent contractors or employees).

MORE INVESTIGATIONS BASED ON INDUSTRY: According to this 2014 budget information, the U.S. Department of Labor will increase the percentage of investigations that it does based upon industry rather than complaints.

 

In the past, the U.S. Department of Labor has based its independent contractor investigations largely on complaints made by disgruntled workers. Now, the U.S. Department of Labor will look at companies in industries with a high prevalence of worker misclassification.

 

CERTAIN INDUSTRIES MORE LIKELY TO HAVE WORKER MIS­CLASSIFICA­TION: The U.S. Department of Labor’s 2014 budget information notes that certain industries are more likely to have worker misclassification (some of the industries named in this regard are construction, janitorial, home health care, child care, transportation, warehousing, meat and poultry processing, personnel service, etc).

 

The bottom line here is that a company using independent contractors may not have any reported complaints from its workers, but that company may still be targeted by the U.S. Department of Labor for an audit.

COORDINATION WITH VARIOUS STATES: The U.S. Department of Labor continues to threaten that it is going to coordinate its efforts in investigating independent contractor status with various states. 

 

The Obama administration has been vocal about the fact that it wants to increase its investigation and enforcement of those businesses that use independent contractors and also increase its coordination with other federal and state agencies.

 

COMPANIES SHOULD HAVE INDEPENDENT CONTRACTOR RELATION­SHIPS CAREFULLY REVIEWED BY A KNOWLEDGEABLE PROFESSIONAL: Any company that uses independent contractors should realize that the climate throughout the United States is much more aggressive in terms of state and federal investigation. Therefore, those companies should be sure to have their websites, independent contractor agreements and documentation, and overall independent contractor relationships carefully reviewed by a knowledgeable professional.

 

For consultations on limiting your liability in the use of independent contractors, contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in assisting companies who use Independent Contractors of all types.  Nancy Joerg can be reached at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

Government Agencies are Going After Employers Who Wrongly Misclassify Employees as Independent Contractors

September 2011
By: Nancy E. Joerg, Esq. 

On September 19, 2011, Secretary of Labor Hilda L. Solis hosted an historic ceremony at U.S. Department of Labor headquarters in Washington. Ms. Solis signed a memorandum of understanding with the Internal Revenue Service intended to improve the U.S. Department of Labor's energetic efforts (across the United States) to end the business practice of misclassifying employees.

In addition, labor commissioners and other agency leaders representing seven states signed memorandums of understanding with the U.S. Department of Labor'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 involved 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. This giant cooperative effort is intended to stamp out misclassification of independent contractors across the United States.

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

These new memorandums of understanding arose as part of the U.S. Department of Labor's Misclassification Initiative. The Initiative was launched by Vice President Biden's Middle Class Task Force with the goal of preventing, detecting and remedying employee misclassification across the U.S.

"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 of Labor Solis. Solis added, "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."

Now, when an individual files a complaint with the U.S. Department of Labor claiming that he or she was not being paid as an employee (i.e., worked as a misclassified employee), the U.S. Department of Labor will share this information with the IRS and with states that have signed agreements with the U.S. Department of Labor.

These government agencies believe that employers who misclassify their employees as independent contractors often do so to avoid paying taxes, workers' compensation insurance premiums, and other costs such as employee benefits. In the government perspective, this intentional misclassification allows these employers to unfairly undercut their competition and makes it harder for legitimate businesses to compete.

In view of this determined effort by the IRS, the U.S. Department of Labor, and state agencies to share information and coordinate law enforcement in order to "level the playing field" for what they term law abiding employers, any companies using independent contractors should be sure to have their independent contractor relationships evaluated to see if the relationship is supported by Federal and State law. Also, any independent contractor agreements, websites, independent contractor manuals, etc. should be very carefully reviewed by experienced legal counsel.

Readers should be aware that the independent contractor tests for the IRS, U.S. Department of Labor and various states all may vary considerably. Therefore, research must be done for a company using independent contractors to determine potential liability under the different independent contractor tests and definitions.

Don't delay in doing what you can to limit your liability in using independent contractors.

Questions about this topic or other management-side labor and employment law issues? Please contact WS Shareholder and Senior Attorney Nancy E Joerg at 630-377-1554, najoerg@wesselssherman.com, or visit our website.

School's Out Soon -- Read this Before Hiring Teen Workers

May 2010
By: Nancy E. Joerg, Esq.

Summer is coming and many teenagers across America are looking for jobs. From seasonal positions to more work hours at jobs they already have, millions of teenagers across the country are seeking summer jobs to find money, experience and build their resumes.

While these teen workers can be valuable employees, teen workers also require special handling to comply with U.S. Department of Labor (DOL) strict rules (and varying state laws) on employing minor workers.

VIOLATIONS LEAD TO CIVIL AND CRIMINAL PENALTIES: The influx of teenagers into the U.S. workplace during the next few months means employers should review federal and state rules governing teen workers to ensure they are in compliance. Employers who violate the child labor laws are subject to civil and criminal penalties.

Wal-Mart: Wal-Mart (the biggest retailer in the world) recently found this out "the hard way"! The DOL fined Wal-Mart $135,540 in civil penalties for violating the youth employment provisions of the Fair Labor Standards Act (FLSA) for allowing teenage workers to operate hazardous equipment.

The DOL conducted an investigation of 25 of Wal-Mart's stores from October 1998 through April 2002 (21 stores in Connecticut, 3 in Arkansas, and 1 in New Hampshire). The investigation showed that Wal-Mart employed 85 minors, aged 16 and 17, who were performing prohibited activities under federal child labor laws, including loading and occasionally operating or unloading scrap paper bales and operating forklifts at Wal-Mart stores.

In reaching a settlement agreement with the DOL, Wal-Mart agreed to the following actions: designating a corporate officer at Wal-Mart to supervise compliance with the settlement agreement; providing new and current store managers at Wal-Mart with training on child labor law compliance; including child labor compliance reviews in Wal-Mart's regular internal audits; and posting of warning signs, supplied by the DOL, on all Wal-Mart owned hazardous equipment indicating the age restriction on their use. Additionally, Wal-Mart agreed that it will implement these practices in all Wal-Mart Stores and Supercenters.

Super Center Concepts: Another large employer, Super Center Concepts, the parent of Superior Grocers, has recently been ordered to pay $79,200 by the DOL's Wage and Hour Division for violation of child labor laws. According to a release from the DOL, the regional grocery chain allowed minors to operate scrap paper balers, paper box compactors and forklifts. A total of 40 hazardous occupational violations were identified as occurring at the stores between March 2007 and March 2009. The company has contested the civil money penalty assessment.

FEDERAL RULES: Federal child labor rules are established by the Fair Labor Standards Act (FLSA) which establishes minimum wage, overtime pay, recordkeeping, and child labor rules affecting full- and part-time workers. The rules vary depending upon the age of the young worker and his or her occupation. Once a youth reaches 18 years of age, he or she is no longer subject to the federal youth employment provisions.

STATE RULES: All states have child labor standards. When federal and state standards differ, the rules that provide the most protection to young workers will apply. Be sure to check your state's child labor laws before hiring teen workers.

PROHIBITED OCCUPATIONS FOR 14 AND 15-YEAR OLDS: Children ages 14 and 15 are prohibited under the FLSA from working in the following occupations: manufacturing, mining, or processing occupations; using power-driven machinery other than office machines; using motor vehicles or serve as helpers on such vehicles; working in a public messenger service; baking; boiler or engine room work, whether in or about; cooking, except with gas or electric grilles that do not involve cooking over an open flame and with deep fat fryers that are equipped with and utilize devices that automatically lower and raise the baskets in and out of the hot grease or oil; freezers or meat coolers work; loading or unloading goods on or off trucks, railcars or conveyors; and several other occupations.

MINORS CANNOT WORK IN HAZARDOUS OCCUPATIONS: Generally speaking (there are some exceptions), minors under the age of 18 cannot work in occupations that have been deemed hazardous or detrimental to the health or well-being of such minors. These occupations are many and include: those occupations in or about plants or establishments manufacturing or storing explosives or articles containing explosive components; motor-vehicle driver and outside helper; logging and occupations in the operation of any sawmill, lath mill, shingle mill, or cooperage stock mill; operation of power-driven woodworking machines; operation of power-driven hoisting apparatus; operation of power-driven metal forming, punching, and shearing machines; operation of power-driven meat-processing machines and slaughtering, meat packing or processing; operation of bakery machines; operation of paper-products machines, scrap paper balers, and paper box compactors; operations of circular saws, band saws, and guillotine shears; roofing operations and on or about a roof; and many others.

RESTRICTION ON HOURS OF WORK FOR TEENS: The child labor provisions of the FLSA include restrictions on hours of work and occupations for youth under age 16. The permissible jobs and hours of work, by age, in nonfarm work are as follows:

• Minors age 18 or older are not subject to restrictions on jobs or hours.
• Minors age 16 and 17 may perform any job not declared hazardous by the DOL, and are not subject to restrictions on hours.
• Minors age 14 and 15 may work outside school hours in various nonmanufacturing, non-mining, nonhazardous jobs listed by the DOL's regulations under the following conditions: no more than 3 hours on a school day, 18 hours in a school week, 8 hours on a non-school day, or 40 hours in a non-school week. In addition, they may not begin work before 7 a.m. or work after 7 p.m. (except from June 1 through Labor Day, when evening hours are extended until 9 p.m.). The permissible work for 14 and 15 year olds is limited to those jobs in the retail, food service and gasoline service establishments specifically listed in the DOL's regulations. Those enrolled in an approved Work Experience and Career Exploration Program (WECEP) may work up to 23 hours in school weeks and three hours on school days (including during school hours).

ENFORCEMENT: The Wage & Hour Division's enforcement of the FLSA is carried out by investigators stationed across the United States. These federal investigators gather data on wages, hours and other employment conditions or practices to determine compliance with the law. Where violations are found, they also may recommend changes in employment practices to bring an employer into compliance. It is a violation to fire or in any other manner discriminate against an employee for filing a complaint or for participating in a legal proceeding under FLSA.

Willful violations may be prosecuted criminally and the violator fined up to $10,000. A second conviction may result in imprisonment. Violators of the child labor provisions are subject to a civil penalty of up to $10,000 for each employee who was the subject of a violation.

WORK PERMITS AND AGE CERTIFICATES: Employers can protect themselves by requiring minors to give them work permits and age certificates. The federal government does not require work permits or proof-of-age certificates for a minor to be employed. Many states, however, do require them for workers of certain ages. In addition to state labor departments, school guidance counselors might know if permits or proof-of-age certificates are required in that particular state. The DOL will issue age certificates if the minor employee's state does not issue them, or if the minor is requested by his or her employer to provide one. However, the vast majority of age certificates are issued by states.

The purpose of these certificates is to protect the employer from prosecution for employing an under-aged worker. The possession of an age certificate constitutes a good faith effort to comply with minimum age requirements.

SOME EXEMPTIONS: The FLSA provides for certain child labor exemptions. For example, minors under age 16 working in a business solely owned or operated by their parents or by persons standing in place of their parents can work any time of day and for any number of hours. However, parents are prohibited from employing their child in manufacturing or mining or in any of the occupations declared hazardous by the Secretary of Labor.

TIPS FOR EMPLOYERS: Putting warning stickers on equipment that teen workers cannot use is an excellent idea. Some employers place special "Warning Stickers" on equipment that young workers may not legally operate or clean. Stickers can be downloaded through the U.S. DOL at: http://youthrules.dol.gov/news/posters-stickers-bookmarks/index.htm.

Also using different colored vests for employees under age 18 allows supervisors to know at a glance who can and cannot operate the electric meat slicer, for example.
There are also some very helpful fact sheets regarding child labor in various occupations. Those fact sheets can be downloaded at: http://youthrules.dol.gov/news/fact-sheets/index.htm


FINAL WARNING: Child labor laws vary from state to state, so check your state's most recent child labor laws before you hire teen workers.

Questions about this topic or other management-side labor and employment law issues? Please contact WS Shareholder and Senior Attorney Nancy E Joerg at 630-377-1554, najoerg@wesselssherman.com, or visit our website.