A new bill called the Payroll Fraud Prevention Act (full bill can be viewed here) seeks to more heavily punish employers who misclassify employees as independent contractors. The bill is designed to both educate workers as well as efficiently identify and persecute violating employers.If the bill is passed, the Department of Labor will be responsible for creating an educational website for employees where they can learn about the difference between employees and independent contractors. The website will also contain contact information for persecuting offending businesses. The bill’s sponsors claim that misclassification is a form of payroll fraud and that it is a way for businesses to evade employment taxes.
The bill will expand the Fair Labor Standards Act in the following ways.
- Employers will have to keep employee records listing each employee’s employment classification, i.e. employee or independent contractor, and why.
- Employers be responsible for educating employees on employee or non-employee status. Employers will direct workers to the Department of Labor (DOL) website to learn about the difference between types of workers and procedures for prosecuting employers who misclassify employees.
- Employers could pay penalties of up to $5,000 per misclassified employee and per employee that was not properly informed of his rights.
- Employers who misclassify employees can face triple fees for minimum wage violations.