California was one of the first states to enter into an information sharing agreement with the IRS regarding worker classification audits. In fact, California is one of the only states to have two such agreements with the IRS – one is with the Franchise Tax Board and the other is with the Employment Development Department (which deals with unemployment benefits).
On February 9th, California entered into its third agreement, this time in the form of a Memorandum of Understanding with the Department of Labor (DOL). This agreement goes beyond any agreement previously signed by the state and covers a variety of joint efforts to audit and penalize employers for misclassifying workers as independent contractors.
The DOL has already entered into similar agreements with Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington. Further details of each agreement can be found on the DOL’s dedicated worker misclassification web page.
In 2011, the Wage and Hour Division of the DOL collected $5M in back wages alone – not including fines and penalties – that resulted from employees being misclassified as independent contractors. Expect these efforts to multiply: this was before the DOL got a hefty budget and staff increase for 2012 and had state agencies join their enforcement army.
Is your company ready for a joint state-DOL attack?