DOL and IRS to Share Data on Employers Who Commit Payroll Fraud [1]
Last week, Secretary of Labor Hilda L. Solis and IRS Commissioner Doug Shulman signed a “memorandum of understanding” between the US Department of Labor and the Internal Revenue Service (IRS). The agreement is part of a continued effort to put and end to the practice by unethical employers of misclassifying their employees as independent contractors in order to avoid paying workers’ compensation insurance fees, overtime pay, federal payroll taxes and unemployment insurance for those workers.
Representatives of state labor agencies from Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington also signed agreements with the DOL’s Wage and Hour Division. Similar agreements are pending between the DOL and Hawaii, Illinois, Montana and New York.
According to a press release from the DOL [12],
“The memorandums of understanding will enable the U.S. Department of Labor to share information and coordinate law enforcement with the IRS and participating states in order to level the playing field for law-abiding employers and ensure that employees receive the protections to which they are entitled under federal and state law.”
The press release quotes Secretary Solis as saying:
“We're here today to sign a series of agreements that together send a coordinated message: We're standing united to end the practice of misclassifying employees. We are taking important steps toward making sure that the American dream is still available for all employees and responsible employers alike.”
Commissioner Shulman stated:
“This agreement takes the partnership between the IRS and Department of Labor to a new level. In this new phase of our relationship, we will work together more efficiently to address worker misclassification issues, and better serve the needs of small businesses and employees.”
The new agreements will allow the agencies to share information about violators in order to punish them more aggressively and provide more incentive for them to pay their employees fairly. An article by the Associated Press posted on NPR’s website [13] quotes Patricia Smith, attorney for the DOL:
“In the past, a company might pay a single fine to a state agency for not making proper unemployment insurance payments. Under the new agreements, a state can share the information with the Labor Department, which also can seek fines and penalties for federal wage violations. The violation also would be reported to the IRS, which can go after the company for unpaid taxes.”
Unscrupulous contractors who commit payroll fraud by misclassifying workers may soon find themselves facing more penalties when caught than they may have faced in the past.
A copy of the signed Memorandum of Understanding between the IRS and the DOL is attached below.