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Worker classification: Congress considers bringing in FLSA

In today's dynamic, globalized workplace, workers with different tax statuses increasingly work side by side.

For those labeled as employees, companies are on the hook for payroll taxes, as well as workers' compensation and unemployment taxes. But employers do not bear those burdens for those considered independent contractors.

It is small wonder, then, that the IRS is engaged in a constant cat-and-mouse game with employers, trying to catch them for supposedly misclassifying employees as contractors in order to avoid taxes. It's a scenario, many commentators believe, that calls out for a larger legislative fix that would not make such seemingly arbitrary distinctions among such similarly situated workers.

Unfortunately, the latest rumblings in Washington on worker classfication are coming from the opposite direction.

Earlier this month, Sen. Bob Casey of Pennsylvania introduced a bill in Congress that would add increase penalties against companies that are determined to have misclassified workers. The proposed bill would do this by making misclassification a violation of the Fair Labor Standards Act (FLSA).

The FLSA is the landmark federal law that establishes wage-and-hour rules that employers must follow.

At a hearing on the proposed bill, there were numerous concerns expressed. One business executive testified that many workers prefer the flexibility that comes with independent contractor status and would leave his company if forced to become employees.

That was hardly the only concern, either. One of Sen. Casey's colleagues said the law needs to take account of an employer's intent. There is a big difference between companies that make honest mistakes when classifying workers and those that engage in deliberate misclassification. After all, the standards for distinguishing between employees and contractors are often difficult to understand.

In short, bringing in the FLSA might give federal authorities more sticks to punish employers for misclassification. But it would not really rethink the broader problem of worker classification distinctions that have become difficult to sustain in an economy that has come to rely so heavily on free-agent workers.

Source: Fort Worth Star-Telegram, "Bill aims to protect workers wrongly labeled as independent contractors," Franco Ordonez, Nov. 12, 2013

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