In an earlier blog, I advised you on the need to properly classify employees and independent contractors. I reported that both the IRS and state governments have begun increasing employer audits. Now we learn that, Congress has introduced new legislation targeting abuses of the employee/independent contractor classifications. The Employee Misclassification Prevention Act is aimed at insuring that workers who are considered “employees” under the broad test of the Fair Labor Standards Act (FLSA) are properly classified by their employers-making them eligible for minimum wage and overtime compensation and other statutory employee protections and providing tax revenue to the government through employer withholdings and payments.
All employers should immediately begin a two pronged review:1) review every exempt employee to ensure they are properly classified under the Fair Labor Standards Act (FLSA); and 2) test each of your independent contractor positions using both the federal and states tests to ensure that they are properly classified. As I noted last month, a government audit can be painful, time consuming and expensive. Prepare now.