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Worker Misclassification is Focus of Colorado-U.S. Labor Department Partnership

  • December 9, 2011

Demonstrating a heightened focus on worker misclassification, the Colorado Department of Labor and Employment has signed a memorandum of understanding with the U.S. Department of Labor’s Wage and Hour Division to reduce employers’ misclassification of employees as independent contractors.  The Memorandum, according to the agencies, is designed to present a “unified front” on the issue.

The question of who is an “employee” and who is an “independent contractor” is a fact-specific inquiry that depends on a number of factors.  These include the employer’s right to control the manner and means by which work is accomplished, the duration of the relationship, who bears the risk for profit and loss, and the parties’ understanding of the relationship.  The more control an employer exercises over the worker, the more likely an employer-employee relationship would be found to exist.

Businesses typically do not pay employment taxes, unemployment insurance, or overtime, or contribute payments to the workers’ compensation fund for independent contractors.  Therefore, Colorado has an interest in reducing misclassification to increase its tax revenue and payments to its unemployment insurance and workers’ compensation funds.
The consequences of misclassifying employees for employers can include federal and state penalties for failure to pay minimum wage and overtime, liquidated damages, and attorneys’ fees.  According to the U.S. DOL, in 2010, it collected nearly $4 million in back wages for minimum wage and overtime pay for worker misclassification under federal law.

The Colorado-U.S. DOL Memorandum, signed December 5, 2011, was entered into as part of the U.S. DOL’s Misclassification Initiative.  The Initiative is a component of Vice President Joe Biden’s Middle Class Task Force.  Colorado is the eleventh state to enter into such an agreement, following Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah, and Washington.

Employers should consider conducting a self-audit to identify any employees misclassified as individual contractors.  Jackson Lewis attorneys are available to assist employers in conducting such evaluations.

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