Employers should take care to ensure that independent contractors are properly classified, as additional scrutiny is being placed on classification, and heavy financial penalties are being proposed. This article demonstrates how severe a penalty employers can pay for misclassifying employees as independent contractors in Connecticut, even where unintentional. As the article mentions this increase in penalties is part of a broader effort by numerous states and the federal government to ensure proper employee classification.
Click here to read the full article in the Connecticut Labor and Employment Law Journal
Startups are not immune to the pitfalls of misclassifying employees as Independent Contractors (ICs). ICs can provide startups with competitive advantage and access to the talent that they need, nonetheless IC compliance needs be a priority. The complex and subjective nature of government regulations are simply beyond the expertise of many entrepreneurs. Fortunately there are experts like ICon available to help minimize your risk.
A Plano cable TV installation company must pay $270,696 in back overtime to 114 workers it incorrectly classified as independent contractors instead of employees. Integral Development Solutions LLC will make the payments under the terms of a settlement agreement after the U.S. Department of Labor (DOL) sued on the workers’ behalf.
The DOL’s Wage and Hour Division conducted an investigation in which it concluded that Integral had misclassified the employees as independent contractors. The company paid the workers on a piece-work basis—offering a flat rate for every cable installation they completed. But investigators determined that the installers should have been classified as nonexempt employees, entitled to time-and-a-half their regular rate of pay for overtime hours worked.
The federal agency also claimed Integral Development Solutions failed to maintain accurate records of work hours and wages.
The case represents more than just a disagreement over bookkeeping, according to Cynthia Watson, the Wage and Hour Division’s Southwest regional administrator. “Misclassifying employees as independent contractors is no mere technical violation,” she said in a statement. “It is an evasive practice that causes hardworking Americans to lose out on wages they rightfully earned and places law-abiding employers at a competitive disadvantage they cannot afford.”
Final note: The Obama administration has made misclassification investigations a priority.
Connecticut labor officials said Wednesday that they have recently halted work by 19 companies at six construction sites in Westport. The state said the firms misclassified workers as independent contractors to avoid workers compensation and other payments. Gary Pechie, director of the Department of Labor’s division of wage and workplace standards, said the companies face a daily fine of $300 for each day they fails to carry workers’ compensation coverage as required by law. In the past six months, 103 stop work orders were issued with $81,000 in fines collected. The agency investigates complaints from workers and unions and checks building permits. Stop work orders are imposed on companies that misclassify workers as independent contractors to avoid paying workers’ compensation, unemployment taxes and payroll reporting.
Commentary and analysis by Catherine Chidyausiku, Icon’s Director of Compliance
The crackdown on misclassification of workers as independentcontractors continues, with particularly harsh consequences when it comes to the construction industry. In Connecticut, a finding by the DOL that a company has misclassified workers on a construction site allows the DOL to halt work on that site, and charge daily fines relating to lack of workers’ compensation until the issues are resolved.