Legislation introduced in both the House and Senate would impose new record-keeping requirements on employers that hire independent contractors, and impose stricter penalties for misclassification. Introduced by Rep. Lynn Woolsey (D-CA) and Sen. Sherrod Brown (D-OH), the Employee Misclassification Prevention Act (H.R. 5107, S. 3254) would amend the Fair Labor Standards Act (FLSA) to require employers to keep records on and notify workers of their employment or independent contractor classification and their right to challenge that classification. In addition, the measure would do the following, among other things:

• Impose civil penalties under the FLSA (up to $1,100 per employee for first offenders; $5,000 per employee for repeat or willful violations) on employers that misclassify employees as independent contractors;
• Amend the Social Security Act to establish administrative penalties for misclassifying employees, or paying unreported wages to employees without proper recordkeeping, for unemployment compensation purposes;
• Mandate state unemployment insurance agencies to conduct audits to identify employers who are misclassifying employees;
• Direct the Department of Labor (DOL) to perform targeted audits focusing on employers in industries that frequently misclassify employees;
• Allow the DOL and the Internal Revenue Service to share information on cases where employers misclassify workers;
• Track and monitor states’ effectiveness in identifying employers who misclassify employees; and
• Require the DOL to create a website summarizing employee rights under this Act.

In a statement, Secretary of Labor Hilda Solis praised this bill, adding that:

The Department of Labor is working with the Vice President's Middle Class Task Force and the Department of Treasury on a multi-agency initiative to develop strategies to address this issue [of worker misclassification]. The administration's budget request for fiscal year 2011 includes $25 million for the Department of Labor as part of this initiative, including $12 million for increased enforcement of wage and overtime laws in cases where employees have been misclassified. 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.

Other bills introduced this legislative term that address worker misclassification include the Taxpayer Responsibility, Accountability, and Consistency Act of 2009 (S. 2882) introduced by Sen. John Kerry (D-MA), and a similar bill (H.R. 3408) with the same name introduced by Rep. Jim McDermott (D-WA). Both bills would revise section 530 of the Revenue Act of 1978, known as the “safe harbor” provision, which currently allows employers to designate certain workers as independent contractors for federal employment tax purposes.

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