The U.S. Labor Department, nine states (including Washington), and the IRS have agreed to share labor and wage information in order to decrease improper classification of workers, as reported by the Washington Post on September 20, 2011. According to the top attorney for the Labor Department, Patricia Smith, businesses are routinely misclassifying their workers as independent contractors or non-employees to avoid paying workers’ compensation, payroll taxes, and overtime.
The practice of misclassification is not only in violation of state and federal labor laws but hinders legitimate businesses, businesses that act in accordance with the law, from competing against the labor law-breakers.
While Washington has its own wage complaint investigators through the Washington Department of Labor and Industries (“L&I”), Labor Department involvement may help increase enforcement efforts in our state and eliminate the labor law-breakers. Referrals by states such as Washington will likely increase enforcement efforts because the states will refer alleged violations to the Labor Department for further investigations. The Labor Department has hired more than 300 new investigators to assist in examining wage theft complaints. In 2010, these efforts have resulted in the Labor Department collecting nearly $4 million in back wages.
One of the industries that the Labor Department is focusing on is construction, especially home builders, to ensure that contractors are properly classifying their workers, paying the appropriate minimum wages, and compensating workers for overtime. The construction industry may also be hit with increased violations because of contractors that fail to pay the proper prevailing wages on public works projects.
Prevailing wage in Washington is determined by L&I and is different in each county, causing some confusion over the correct hourly rate and fringe benefits for the type of work being performed. It will be even more important now for contractors to ensure subcontractors comply with the prevailing wage requirements. On public works projects, general contractors may be held liable for a subcontractors prevailing wage violations-even on private projects, general contractors may be held liable for a subcontractor’s failure to pay minimum wage or overtime. Regardless of the type of project, with federal agencies involved, both general contractors and subcontractors will likely be subject to more substantial fines and penalties from both the Labor Department and the IRS.
To read the article from the Washington Post, click here.