Last November, 2013, Senator Bob Casey introduced a Senate bill aimed at employers intentionally misclassifying employees as independent contractors in order to avoid payroll taxes and fair labor standards.
The Payroll Fraud Prevention Act of 2013 (“PFPA”) represents a growing effort, both at the state and national level, to prevent employers from evading tax laws and depriving employees of benefits and legal protections. At present, the PFPA has not been passed into law. However, employers should understand the consequences of this potential law and keep a close eye on its progress.
Who is subject?
The PFPA would amend the Fair Labor Standards Act (“FLSA”). The proposed law would apply to all employers currently subject to the FLSA.
Requirements of the amendment?
Under the PFPA, employers would be required to accurately classify a worker as either an employee or non-employee and provide the worker with written notice of the classification.
In addition to notifying the worker of the classification, the notice must:
(1) Direct the worker to the US Labor Department website;
(2) Contain the address and telephone number of the local USDOL office; and
(3) Include a prescribed rights-related statement.
Should an employer fail to give any worker the notice, that worker would be presumed to be an employee. First notices would be due within six (6) months of the PFPA’s enactment.
What are the penalties?
The proposed law would impose severe penalties for violations. Employers could be fined $1,100 per worker misclassification; if the mistake results in a FLSA-minimum wage or overtime violation, the damages would triple. Currently, the FLSA permits imposition of penalties for repeated or willful violations of the minimum wage or overtime regulations. Under the proposed PFPA, penalties can be imposed even if the employer demonstrates that the misclassification was unintentional. If the violation is repeat or willful, penalties rise to $5,000. Violations of the PFPA include misclassification, failure to classify, and failure to give the required notice.
So what now?
While the PFPA of 2013 has not yet become law, employers should keep a close watch on the progress of this Senate bill. Even if the bill is not enacted, it represents a continuing trend towards increased scrutiny of worker classification. For example, in 2010, Pennsylvania enacted The Construction Workplace Misclassification Act, which stiffened the criteria for classifying construction industry employees and independent contractors. If passed, the PFPA would create another, separate source of liability to which Pennsylvania employers would be subject at the federal level. Employers should regularly review the services performed by their independent contractors to ensure proper classification and seek legal counsel when questions arise.
The Eastern Pennsylvania Employment Log (EPELog) is a publication of the KingSpry Employment Law Practice Group. Jeffrey T. Tucker, Esquire, is our editor-in-chief. EPELog is meant to be informational and does not constitute legal advice.
