Increased Focus on Misclassification of Workers as Independent Contractors Will Continue in Louisiana
On October 25, 2017, the Louisiana Workforce Commission (“LWC”) issued a press release acknowledging the efforts of a task force which combats the misclassification of employees as independent contractors. The task force, known as “Government Against Misclassified Employees Operational Network” (“GAME ON”), is made up of members of the LWC’s Unemployment Insurance and Office of Workers’ Compensation divisions and the Louisiana Department of Revenue, with cooperative agreements with the Internal Revenue Service (“IRS”) and the U.S. Department of Labor’s (“DOL”) Wage & Hour Division.
The GAME ON task force has focused on industries that the Louisiana Workforce Commission claims are historically known to use independent contractors on a large scale, including construction, healthcare, hospitality, personal service, and staffing companies. The task force was recently named GAME ON, but according to the press release, for the last several years, the LWC, through use of its tax auditors, has led the nation in audit-based discoveries of misclassified workers. In 2015 alone, these auditors discovered what they considered to be 20,000 cases of misclassified workers in Louisiana, totaling $101 million in unreported wages.
The press release states that the task force will ramp up its efforts even more in 2018, including the use of software that helps the LWC identify suspect companies. If a company is found to have misclassified workers, it generally has to pay back taxes on unreported wages. Companies could also face penalties of up to $1,000 per offense.
Each member of the task force has different interests in the misclassification of workers as independent contractors. For example, the LWC wants to ensure that the state’s Unemployment Insurance Trust Fund is being properly funded. Companies do not pay into the Trust Fund for independent contractors. The LWC’s Office of Workers’ Compensation governs whether a company is maintaining adequate workers’ compensation coverage for its employees, and if a company is classifying a worker as an independent contractor, it is likely not maintaining adequate coverage. Of course, the IRS has an interest in ensuring that proper federal taxes are being paid on employees. Finally, the DOL has an interest in ensuring that workers are being paid minimum wage and overtime, which is often not considered when using independent contractors.
This continued focus by the GAME ON task force is important to any company who regularly uses independent contractors. All companies should review their use of independent contractors to ensure they are not being misclassified. As an example, in making its determination as to whether an individual is actually an employee, the LWC considers whether the individual is subject to the direction and control of the company, whether the services of the individual are within the usual course of business of the company and are performed at the company’s usual place of business, and whether the individual has his/her own established business independent of the company’s business.
Simply calling a company or an individual an “independent contractor” is not enough. What the LWC and other agencies consider is the reality of the situation, and whether the individual is subject to the control and direction of the company. It is important to consider all of these factors when making such a determination, especially with the heightened scrutiny from government agencies.