DOL, IRS Team Up on Employee Misclassification

The U.S. Department of Labor (DOL) and the IRS say they have signed a memorandum of understanding that will improve departmental efforts to curb the misclassification of employees as independent contractors. Eleven states, including Connecticut, have also signed or intend to sign memorandums.

The memos of understanding will enable the DOL to share information and coordinate law enforcement with the IRS and participating states. In addition to Connecticut, signatory states are: Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah, and Washington.

Business models that attempt to change, obscure, or eliminate the employment relationship are not inherently illegal, says DOL, unless they are used to evade compliance with labor laws: for example, if an employee is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law. In addition, says DOL, misclassification can create economic pressure for law-abiding business owners.

The memos of understanding arose as part of the department’s Misclassification Initiative.