Initiative seeks to curb employee misclassification

Colorado has joined in a growing federal initiative designed to curb the improper classification of employees as independent contractors.

Ellen Golombek, executive director of the Colorado Department of Labor and Employment, and Nancy J. Leppink, a deputy administrator who leads the U.S. Labor Department wage and hour division signed a memorandum of understanding on employee classification. Colorado is the 11th state to join in the effort.

“Misclassification costs everyone,” Golombek said. “It destabilizes the business climate by causing responsible businesses to suffer unfair competition. The efforts we will be launching with the U.S. Department of Labor will promote accountability that Colorado employers and employees will welcome.”

Added Leppink: “This memorandum of understanding helps us send a message: We’re standing united to end the practice of misclassifying employees. This is an important step toward making sure that the American dream is still available for employees and responsible employers alike.”

The memorandums of understanding arose as part of the U.S. Department of Labor Misclassification Initiative launched under the auspices of Vice President Joe Biden’s Middle Class Task Force with the goal of preventing, detecting and remedying employee misclassification.

In 2010, the U.S. Labor Department Wage and Hour Division collected nearly $4 million in back wages for minimum wage and overtime violations that were a result of employees being misclassified as independent contractors or otherwise not treated as employees. That figure constituted an increase of almost 400 percent from the 2008 fiscal year, when the division found just over $1.3 million owed for the same reason.

Business models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal unless they are used to evade compliance with federal labor laws. However, the misclassification of employees as something other employees, such as independent contractors, poses a serious problem for affected employees, who are often denied access to critical benefits and protections – such as family and medical leave, overtime, minimum wage and unemployment insurance – to which they are entitled, according to the Labor Department.

In addition, misclassification can create economic pressure for law-abiding business owners who often find it difficult to compete with those who are saving money by skirting the law. Employee misclassification also generates substantial losses for state unemployment insurance and workers compensation fund, according to the Labor Department.