In recent weeks, much focus has been placed on the classification (or misclassification) of workers as “independent contractors" versus “employees”.   The federal government is working to ensure that you are not trying to avoid overtime pay, unemployment compensation, payroll taxes and employment-related rights and benefits by claiming they are independent contractors.

Even individual states are taking action.  California (gee… who out there is surprised that CA would be one of the first states to jump on the band-wagon) has recently sent "employment relationship" questionnaires to "independent contractors" to ensure that those individuals should not be classified as employees.

In May 2008, the U.S. House of Representatives introduced the Employee Misclassification Prevention Act (H.R. 6111). As its name suggests, this legislation targets employers who misclassify their employees as "independent contractors."  If passed, this legislation would make the misclassification of employees a prohibited act under the Fair Labor Standards Act and increase penalties under the FLSA. The legislation would also require employers to keep records regarding their classification of workers, notify workers of their classification, and allow them to challenge that classification. In addition, the proposed legislation would require state unemployment insurance agencies to conduct audits to determine which employers are misclassifying their employees.  It would also authorize the Department of Labor (DOL) and the Internal Revenue Service to share information on instances of misclassification, and mandate that the DOL perform audits focusing on industries that frequently misclassify employees.

In light of the increased scrutiny on independent contractor relationships, employers should conduct internal audits to ensure they have properly classified their independent contractors and to effectively address any misclassifications.