The DOL and IRS War on Independent Contractor Misclassification Simmers Onward

And he's oh, so good

And he's oh, so fine

And he's oh, so healthy

In his body and his mind

He's a well respected man about town

Doing the best things so conservatively

 --Ray Davies, The Kinks, A Well Respected Man

The U.S. Department of Labor’s (“DOL’s”) Wage and Hour Division has continued to put an ongoing emphasis on investigating misclassification of so-called independent contractors. Enforcement efforts continue here in 2023 cracking down on worker misclassification and adding even more cases. And for all of 2022, the Wage and Hour Division announced at least 32 cases, resulting in roughly $27 million in back wages, damages, and penalties from violations involving at least 6,714 misclassified workers collectively.

In just one example, DOL recovered about $503,000 in back wages and liquidated damages for 227 Panama city Beach, Florida hotel workers who were allegedly misclassified as independent contractors. DOL claimed the hotel staffing agency denied the affected workers full wages and benefits when the employer misclassified them as independent contractors. The misclassification by Touch of Grace Services LLC – which provides hotel workers to several Panama City Beach hotels – led the employment agency to pay the workers straight-time rates for all hours worked, including hours over 40 in a workweek. In doing so, the staffing agency did not live up to its name and did not pay the additional half-time rate for overtime as the Fair Labor Standards Act (“FLSA”) requires. DOL saw to it that the employees  got their back wages and more. For more, see https://www.dol.gov/newsroom/releases/whd/whd20221206.

In addition, in 2022, DOL and the Internal Revenue Service (“IRS”) renewed a memorandum of understanding and added a streamlined process for joint referrals and closer coordination to stop businesses from misclassifying workers and denying them their full wages, benefits and protections under the law. The updated MOU will also help the Wage and Hour Division share information and work in concert with the IRS to strengthen enforcement of federal and state laws that protect workers’ rights. Thus the partnership of the two federal agencies to strike at bogus independent contractor situations continues to have efficacy. The partnership began in 2011, when the two agencies first entered into a memorandum of understanding. Since then, the two agencies have shared information when an investigation discovered that an employer had misclassified employees. By sharing information, the agencies  are acting in concert to reduce both illegal misclassifications and the tax gap, while improving compliance with federal labor laws. 

Accordingly, the DOL battle against misclassification of employees as independent contractor simmers onward.