Employee or Independent Contractor? Employers, answer this question before Virginia's new Task Force answers it for you

On August 14, Governor McAuliffe signed Executive Order No. 24 creating an inter-agency task force to develop and implement a plan to reduce worker misclassification and payroll fraud in Virginia.  This action follows an increase in Department of Labor and IRS scrutiny of employee misclassification.

A 2012 report from the Joint Legislative Audit and Review Commission (JLARC) found that, in certain industries, one third of audited employers misclassified employees as "independent contractors".  In general, the classification of a worker as an "employee" or an "independent contractor" is determined by affirmatively answering the question: "Does the putative employer control both the work performed and the manner in which the work is performed?"  By classifying workers as independent contractors, these employers fail to purchase workers compensation insurance, pay unemployment insurance and payroll taxes, and are not required to comply with federal minimum wage and overtime laws.  The JLARC estimates that worker misclassification costs the Commonwealth $28 million in lost revenue a year.

Executive Order No. 24 sets forth seven (7) specific goals for the task force:

  1. Review statutes and regulations related to worker misclassification and payroll fraud;
  2. Evaluate current enforcement practices of the agencies involved;
  3. Develop procedures for more effective inter-agency cooperation and joint enforcement;
  4. Implement a pilot project for joint enforcement;
  5. Develop educational materials and an outreach strategy for employers;
  6. Advise on any technological improvements in worker misclassification and payroll fraud detection; and
  7. Recommend any appropriate changes to relevant legislation or administrative rules.

Creation of this task force will increase the audit and enforcement efforts of several Virginia agencies, including the Virginia Employment Commission, the Department of Labor and Industry, the Department of Professional and Occupational Regulation, the State Corporation Commission's Bureau of Insurance, the Department of Taxation, and the Workers' Compensation Commission.  This Executive Order should prompt Virginia employers to review their own worker classifications to ensure the proper classification of all workers.  Risks of mistaken or intentional misclassification include liability for: unpaid state and federal income tax withholding, social security and Medicare contributions, the worker's actions under a theory of respondeat superior, and unpaid worker's compensation and unemployment insurance.

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.


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