Labor Secretary Hilda Solis, representatives from seven states, and the Internal Revenue Service signed a memo of understanding last week that explains the agencies will team up to end employee misclassification, or the process of calling a full-time employee a freelancer in order that the employer can avoid paying taxes and benefits.
“We’re standing united to end the practice of misclassifying employees,” said Secretary Solis in a statement. “We are taking important steps toward making sure that the American dream is still available for all employees and responsible employers alike.”
The press release announcing the Labor Department’s intensions is noble, writes lawyer Keith Reinfeld, but “does not provide any detail as to how this objective will be achieved.”
At a minimum, the IRS, DOL, and state agencies (in Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington) will likely be able to share information and help detect misclassification, but we, too, don’t see where else this memo will take the government.
Employee misclassification is a popular trick with some unscrupulous employers as it can save an employer 20 or 30 percent in payroll costs, as there are no taxes, benefits, Medicare, or unemployment insurance to pay for. One study estimated that cracking down could net the government $700 million a year for the next ten years.