Federal and Colorado labor officials are coming down hard on companies that misclassify employees as independent contractors in order to avoid paying unemployment and workers’ compensation premiums.
President Obama earmarked $25 million in the 2011 budget for this purpose, and the Internal Revenue Service plans to audit approximately 6,000 randomly selected employers in the next three years. Earlier this month, Sen. John Kerry, D-Mass, and Rep. Jim McDermott, D-Wash., introduced a bill to close a loophole that allows businesses to misclassify employees as independent contractors for tax purposes.
Local attorneys say their caseload already is surging as companies face audits by the U.S. Department of Labor (DOL) or the Colorado Department of Labor and Employment (CDLE). Last year, Colorado lawmakers raised the penalties for worker misclassification to $5,000 per employee for a first offense and up to $25,000 per employee for subsequent offenses.
“If somebody is classified as an independent contractor, the tax base goes down for the state and the feds,” said Todd Fredrickson, a partner in the Denver office of Fisher & Phillips LLP, an Atlanta-based labor and employment law firm. “We certainly know that it has become a priority for the Department of Labor, and I can tell you that, although it may not have been widely reported at the state level, the CDLE has really stepped up its audits of employers across industries.”
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