States Join Feds in Pay Inquiry

Labor Dept. combines forces with 11 states to crack down on employee misclassification.

The Obama administration and 11 states will join an effort to crack down on companies such as homebuilders, hotels and restaurants that classify employees as independent contractors to avoid paying overtime.

The Labor Department and states agreed to share information filed by companies as the department finds and prosecutes companies that misidentify workers in order to skirt paying unemployment benefits or federal taxes, according to Mike Wald, an agency spokesman.

Misclassifying employees “makes it harder, especially for low-wage workers, to put food on the table,” Labor Secretary Hilda Solis said today on a conference call with reporters.

The Obama administration is stepping up enforcement of wage-and-hour laws, which set minimum pay and define positions where overtime pay is required, targeting industries such as residential construction, hotel, restaurant, janitorial, health- and day-care, the department said in a statement.

“We are actively looking at those industries that employ the most vulnerable workers and that engage in business practices, such as misclassifying employees as independent contractors, that result in violations of minimum wage and overtime laws,” according to the e-mailed statement.

PulteGroup Inc., the nation’s largest homebuilder, received a request from the Labor Department for information, which is under review, said Jim Zeume, a spokesman for the Bloomfield Hills, Michigan-based company. He referred questions on the issue to the Washington-based Leading Builders of America, representing 19 companies. Ken Gear, a group spokesman, didn’t return phone calls seeking comment.


 
$2.72 Billion Cost
A Government Accountability Office report from 2009 found misclassification of workers cost the government $2.72 billion in 2006. A 2000 Labor Department report estimated that as many as 30 percent of employers misclassify workers to exempt them from overtime and other wage laws.

U.S. laws on classifying workers to set wages are vague, said Randy Johnson, a senior vice president at the U.S. Chamber of Commerce, the nation’s largest business group. The Labor Department and the IRS have different tests for violations of these laws, he said today in an interview.

“The department needs to be very careful that it is only going after true violators of the law rather than those with whom there is a disagreement of the law,” he said. “If they are just exploiting vagueness in the law, it’s regulatory overreach.”

Agreements with the states may subject companies to more than one fine for the same violation. In the past, a company might settle with a state agency for an improper payments of unemployment-insurance benefits. Under the accord, states now will share information about a company with the Labor Department, which would seek fines and penalties under federal law. The violations could also be reported to the Internal Revenue Service, which could seek unpaid taxes from the company.

Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington have agreed to work with the Labor Department.

The Wall Street Journal previously reported the agency was examining pay practices in the homebuilding industry.

 

 

Bloomberg News

 

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