US Labor Department, Iowa Workforce Development sign agreement to reduce misclassification of employees as independent contractors

News Release

WHD News Release: [01/17/2013]
Contact Name: Sonia Melendez or Joshua Lamont
Phone Number: (202) 693-4672 or x4661
Release Number: 12-2496-KAN

WASHINGTON — Officials of the U.S. Department of Labor's Wage and Hour Division and Iowa Workforce Development today signed a memorandum of understanding to protect the rights of employees by preventing their misclassification as independent contractors by employers.
Mary Beth Maxwell, acting deputy administrator of the Wage and Hour Division, and Teresa Wahlert, director of Iowa Workforce Development, also hosted a press teleconference to discuss how their two agencies will embark on new efforts, guided by this memorandum, to protect the rights of employees and level the playing field for responsible employers by reducing the practice of misclassification by some businesses. Iowa is the 14th state to form this type of partnership with the Labor Department.
"This memorandum of understanding sends a clear message: We're standing united to end the practice of misclassifying employees," said Maxwell "This is an important step toward making sure that the American dream is still available for employees and responsible employers alike."
"Misclassification is an issue that affects all states. This memorandum will allow Iowa to utilize federal resources that weren't available to the state previously," said Wahlert.
Since September 2011, when the Wage and Hour Division began entering into memorandums of understanding with states and announced a similar partnership with the Internal Revenue Service, the division has collected $9.5 million in back wages for more than 11,400 workers where the primary reason for minimum wage or overtime violations under the Fair Labor Standards Act was that workers were not treated or classified as employees. These figures represent an 80 percent increase in back wages and a 50 percent increase in the number of workers receiving back wages following the implementation of these agreements.
Business models that attempt to change or obscure the employment relationship through the use of independent contractors are not inherently illegal, but they may not be used to evade compliance with federal labor law. Although legitimate independent contractors are an important part of our economy, the misclassification of employees presents a serious problem, as these employees often are denied access to critical benefits and protections — such as family and medical leave, overtime compensation, minimum wage pay and Unemployment Insurance — to which they are entitled. In addition, misclassification can create economic pressure for law-abiding business owners, who often find it difficult to compete with those who are skirting the law.Employee misclassification also generates substantial losses for state Unemployment Insurance and workers' compensation funds.
Memorandums of understanding with state government agencies arose as part of the department's Misclassification Initiative, which was launched under the auspices of Vice President Biden's Middle Class Task Force with the goal of preventing, detecting and remedying employee misclassification. California, Colorado, Connecticut, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington have signed similar agreements.

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