Virginia & North Carolina Launch New Initiatives on Misclassification of Employees as Independent Contractors

Virginia and North CarolinaFrom, JDSupra, D. Earl Baggett, Edward Schenk III and Amanda Weaver of Williams Mullen report initiatives in Virginia and North Carolina to address the misclassification of workers as independent contractors instead of employees.  They discuss some of the factors that help determine if a worker is an employee or independent contractor and then write about the initiatives.  They write:

“In response to the frequency of employee misclassification in Virginia, an inter-agency task force on worker misclassification and payroll fraud was established in Virginia in 2014.  The executive order establishing the task force provides that: “[t]he misclassification of employees as ‘independent contractors’ undermines businesses that follow the law, deprives the Commonwealth of millions of dollars in tax revenues, and prevents workers from receiving legal protections and benefits.” Further, a 2012 report of the Joint Legislative Audit and Review Commission (JLARC) found that “one third of audited employees in certain industries misclassify their employees.”  The executive order goes on to note that “by failing to purchase workers’ compensation insurance, pay unemployment insurance and payroll taxes, or comply with minimum wage and overtime laws, employers lower their costs up to 40%, placing other employers at a competitive disadvantage.” It is estimated that worker misclassification lowers Virginia’s state income tax collections as much as $28 million a year.

The Virginia initiative will mean that, in addition to potential federal liability, such as substantial IRS penalties, Virginia employers will also face increased state enforcement of payroll requirements and potential liability and state-imposed penalties for employees who are misclassified as “independent contractors.”  If an individual has been misclassified as an “independent contractor,” the employer could therefore be obligated to pay penalties as well as significant amounts of unpaid taxes, insurance premiums, wages, overtime payments, benefits, and attorneys’ fees of the misclassified employee.

In North Carolina, Senate Bill 694 (entitled “The Employee Fair Classification Act”) crossed over from the North Carolina Senate to the House on April 29, 2015. The bill had unanimous Senate approval. The proposed law is targeted to remedy and deter what has been perceived as an excessive worker misclassification problem in North Carolina.  Senate Bill 694 would create a special agency in the State budget office to investigate complaints of independent contractor misclassification, issue substantial fines and limit access to government contracts for employers who are caught in violation of the law.  The bill gives the agency the ability to revoke or suspend the licenses of certain tradespeople (including plumbers, HVAC and sprinkler contractors) who violate the law.  The bill also provides for coordination with relevant State agencies and District Attorneys’ offices for criminal prosecution of employers who fail to pay civil money penalties. Importantly, the proposed legislation contains an amnesty provision to encourage employers to voluntarily phase into compliance.  Finally, the bill would codify a list of eight (8) traditional and common law factors that have been applied in various manners over decades of court decisions to determine whether employees are properly classified as independent contractors.  Senate Bill 694 has been referred to the Committee on Rules, Calendar, and Operations of the House.  Its progress can be tracked here….”

Read the full story at Virginia & North Carolina Launch New Initiatives on Misclassification of Employees as Independent Contractors

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