Employee Versus Independent Contractor: EMPA

On April 22, 2010 new legislation aimed at remedying employee misclassification was introduced in both the House and Senate. The bills, H.R. 5107 and S. 3254, are called the "Employee Misclassification Prevention Act" (EMPA). The purpose of EMPA is to curb the practice of misclassifying employees as independent contractors. EMPA would modify the Fair Labor Standards Act, and if enacted in its current state, would have the following effects:
  • require every company covered by the law to provide a written notice to all workers who perform labor or services informing them that they have been classified as either (a) employee or (b) non-employee;
  • require companies to keep records of hours worked by and compensation paid to independent contractors;
  • make it a "prohibited act" for an employer to misclassify an employee as a non-employee;
  • impose a penalty from $1,100 to $5,000 per worker for a violation of the notice requirement, recordkeeping requirement, or a misclassification;
  • impose triple damages in the event of willful violations of the minimum wage or overtime laws where an employee has been misclassified.
Regarding this legislation, Secretary of Labor Hilda Solis stated:
One of my goals as secretary of labor is to secure minimum and overtime wages and to help middle class families remain in the middle class. Working on the issue of misclassification is key to attaining these goals because the misclassification of employees as independent contractors deprives employees of critical workplace protections and employment benefits to which they are legally entitled... The Wage and Hour Division is currently considering how to best target its FY 2011 enforcement efforts and is emphasizing misclassification in its ongoing FY 2010 enforcement strategy. The department is also exploring all possible options for addressing this problem, including ways to better provide guidance to both workers and employers, and to increase information sharing between Department of Labor agencies and the states that are also working on this issue.
According to an article by Richard Reibstein, all businesses would be affected by EMPA "because it imposes upon every company that uses either employees or independent contractors a recordkeeping and a notice requirement. Any business that fails to provide the required notice would be subject to fines, even if its independent contractors are properly classified."

EMPA has implications for all organizations. Even if you don't use independent contractors, you would still be governed by the notice requirement, and would have to notify all of your employees that they are classified as 'employees'. The bills are in their early stages. As they develop, there will no doubt be much discussion. But one thing is clear - employee misclassification is an issue that is not going to disappear any time in the near future.

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Casey said...

this seems like a bad idea. why should they have to keep record of hours worked for independent contractors? ridiculous.