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This report includes a summary of key changes, including the salary level test and salary basis test.

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April 29, 2010
Employee Misclassification Bill Proposes Changes to FLSA
Employers who misclassify their employees as non-employees are the target of a bill brought before Congress earlier this month. The bill would require organizations to keep accurate records of non-employees, such as independent contractors. Employers would also face new penalties for misclassifying employees.

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The bill, referred to as the Employee Misclassification Prevention Act, proposes to make amendments to the recordkeeping and notice requirements section of the FLSA.

The bill would require employers who are subject to FLSA to keep accurate records of all workers, employees and nonemployees (e.g. independent contractors). Records would include the hours worked, payment, and classification of each worker.

Employers would have to give notices to all of their workers, employees and non-employees, upon hire or if there was any change of the employee's classification status. Written notices would need to:

  • Inform the worker of their classification
  • Direct them to the appropriate Department of Labor (DOL) website for further information
  • Provide contact information to the local DOL office
  • Include a special paragraph for non-employees regarding their rights

The bill would prohibit organizations from firing or discriminating against any worker, employee or non-employee, for filing a complaint, testifying in a hearing, or serving on an industry committee regarding misclassification practices.

The language of the Special Penalty for Certain Misclassification, Recordkeeping, and Notice Violations-Section 16 of the FLSA would be changed to include "individuals" in addition to employees. In addition, civil penalties for misclassification practices would be increased to up to $1,100 per worker, and up to $5,000 per worker for willful repeat violations.

The bill also includes a provision for the Secretary of Labor to establish an employees' rights website.

In addition to the amendments proposed to the FLSA, the bill aims to make changes to the Social Security Act (42 U.S.C. 503(a)). The changes are intended to increase enforcement by:

  • Improving auditing and investigative procedures
  • Issuing quarterly report s to the Secretary of Labor on findings
  • Establishing administrative penalties for misclassification practices

To increase effective enforcement of misclassification, the bill seeks to promote inter-department communication. The bill proposes that if any section of the DOL has evidence of an employer participating in misclassification, they should report the information to the Wage and Hour Division (WHD), who then can choose to refer it to the Internal Revenue Service (IRS).

The act would also allow the WHD to target employers for auditing purposes if they are in industry with a history of misclassifying employees.

The bill was referred to the Committee on Education and Labor and the Committee on Ways and Means for review.

The entire bill, H.R. 5107, is available online at the Library of Congress website.

For more information on classifying employees, Employee or Independent Contractor? (from Employer's Supplemental Tax Guide by the IRS) is available.

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