Dealers cautioned on worker classification

Dealers cautioned on worker classification

WANADA members are advised that now more than ever, dealerships should act with caution when deciding whether to classify workers as contractors as opposed to employees.

Following several recent unsuccessful attempts by Congress to legislate the issue, the Obama administration is making worker classification an enforcement priority.

Misclassifying employees as independent contractors risks serious liabilities, including unpaid federal, state, and local income tax withholdings; social security and Medicare contributions; wages, including overtime; workers’ compensation and unemployment insurance premiums; employee benefits; and penalties.

Late last month, the Internal Revenue Service (IRS) and Department of Labor (DOL) agreed to a coordinated enforcement effort on employee misclassification. The stated goal of this $30 million plus effort is to ensure better protections for employees and to level the playing field for law-abiding employers.

The IRS also has launched a Voluntary Classification Settlement Program (VCSP) aimed at encouraging employers to step up and confess to past worker misclassifications. In addition, several states are focusing enforcement resources at worker misclassification, in part motivated by the potential for additional tax and premium revenues. Lastly, there recently has been an increase in the number of unemployment insurance and workers compensation claims brought by independent contractors arguing that they should have been classified as employees.

The heightened level of federal and state scrutiny in this workplace area warrants that dealerships carefully review and document how their workers are classified. When making worker classification decisions, dealerships should be careful, and be prepared to document, document, document

The IRS, the DOL, and the states use multi-factor legal standards and tests to evaluate whether workers are employees or independent contractors. Of greatest importance: the level of control employers exercise over workers as measured by the means and manner of the work performed. Both the DOL and the IRS have helpful fact sheets on their websites addressing this issue. They can be read here and here, respectively.