Insureon Blog

Another Court Ruling on Worker Classification

31. August 2015 07:38

judge holding a gavel

The US Department of Labor made an example out of yet another company – National Consolidated Couriers Inc. this time. According to San Jose Mercury News, the $5 million judgment against the California-based company for misclassifying 600 drivers as independent contractors serves as a warning shot for others.

Misclassify your employees, and this could happen to you, too.

The Judgment Heard Round the World

First, let's be clear that National Consolidated Couriers seems to have made many, many mistakes. The Mercury News report states the company…

You don't have to make the major missteps National Consolidated Couriers made to be hit with misclassification lawsuits and fines. You simply have to accidentally treat your independent contractors like employees without offering them the benefits that comes with W-2 employment.

Why Is the DOL So Invested in Employee Classification?

Worker classification is one of the many areas of employment the Department of Labor oversees. According to information on the DOL's site, it's responsible for:

The issue of worker classification ties into all these objectives. For example, when a company misclassifies an employee as an independent contractor, that company isn't paying the worker's overtime wages, part of their employment tax, or their Workers' Compensation Insurance coverage, which most states require employers to carry for each employee.

The laws are designed to protect workers from being exploited for the employer's gain. So businesses that sidestep labor laws have an unfair advantage over companies that do comply with those regulations. They fatten their bottom line at the expense of the workforce.

In a nutshell, that is why the Department of Labor is investing its energy into classification issues. It's trying to protect workers and level the playing field. You can read more about how it's accomplishing this goal in "Labor Department Helping States Crack Down on Worker Misclassification."

Now Is the Time to Accurately Classify Your Workers

A couple weeks ago, we discussed how 10 to 20 percent of businesses misclassify employees as 1099 contractors (catch up here: "10 - 20% of Businesses Make this Expensive Mistake. Do You?"). Unfortunately, ignorance of the laws isn't a defense for offending businesses. They can be sued and fined over misclassification all the same.

To make sure you stay on the right side of the law, get familiar with the difference between a contractor and an employee. Recently, the Department of Labor clarified that a worker must be in business for themselves to be a contractor, which narrows the scope considerably.

In other words, if the worker is economically dependent on you, they are probably not a contractor. Learn more about 1099 vs. W-2 classification in "Workers' Comp Insurance: When Is Someone a Contractor?"

If you find that your contractors are technically employees, amend the situation right away. That may mean…

Yes, employees are an investment. However, it's better to correct course now than face all these expenses and regulatory fines later if you don't comply. If you need more inspiration to evaluate your employment practices, read "Another Day, Another Worker Classification Lawsuit."


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