Over the last twenty-ish years, employers have increasingly been categorizing their workers as 1099 Contractors with very little attention to the actual rules governing the employer/employee or owner/contractor relationship. Small business (and not SBA small business, I mean micro-businesses) have historically always abused these worker relationships simply because of the notion that “we can’t pay for those taxes”.
All of that is coming to a screeching halt.
Our new Secretary of Labor comes from an enforcement background. Back in April, she had this to say about “misclassification”. Notice that there’s a task force, an inter-agency cooperation, and the US DoL is working to address this as a primary issue.
Now, why should you care?
Employees get overtime.
Employees have mandatory SSI matching tax withholdings.
Employees can claim for compensation for work related injuries.
Employees can claim unemployment benefits if laid off or fired.
Employees can make claims for unlawful discrimination.
Employees have to be treated fairly.
Employees have to be paid, in full, on payday.
All of these things translate into perceived higher costs for small employers.
Why are these (existing, not new) rules being enforced for the first time in decades?
Because these costs become a burden on society when misclassified workers have these issues. Because these rules were put into place decades before their enforcement was allowed to lay fallow following deaths of hundreds of workers each month in unsafe conditions, workers being forced to work 90 hours a week and were frequently unpaid. Workers died of diseases and injuries gained from faithful execution of their work.
We have had these rules for more than seventy years, the last twenty or so largely unobserved.
Why do I bring this up?
Here in Houston in the past weeks, UofH has been audited, my favorite restaurant has been audited - several Houston area employers have been audited for misclassification and wage and hour violations.
This isn’t a future issue, this is happening RIGHT NOW.
My favorite restaurant got clipped with nearly $100K of wage and hour violations.
Mind you, THESE ARE NOT NEW RULES. They have been in place since anyone reading these words has been an adult.
They are now being enforced with some vigor.
Misclassification can be a very expensive lesson for someone who has workers that they pay and treat as contractors, but who are actually working in the capacity of employees. In addition to fines (you knew that there would be fines, didn’t you?) you can also expect that misclassified workers will cost the employer the SSI and state/Federal unemployment taxes that should have been withheld/paid.
How could you know for sure whether your workers should be classified as employees, and not as contractors?