Over the past year, our firm has monitored the issue of employee misclassification in the state and proposed bills in the legislature addressing the issue. We have previously posted articles monitoring and updating information, and we presented a short update on misclassification at our annual Summer Construction Conference. Today we bring another update regarding ongoing questions surrounding the State’s efforts to combat employee misclassification.
As a recap, employee misclassification occurs when an employer knowingly or mistakenly classifies an employee as an independent contractor. This classification has certain consequences for wage reporting, taxes, and workers’ compensation requirements, among others. The practice of misclassification in the construction industry is estimated to cost North Carolina over $450 million every year in lost tax revenue. Furthermore, businesses that misclassify workers have lower operating costs, allowing them to underbid competitors for jobs. One of practical benefits of combating misclassification to the NC construction industry is that it creates a level playing field for all employers.
On August 31, the NC Industrial Commission signed a Memorandum of Understanding (MOU) with the U.S. Department of Labor’s Wage and Hour Division (WHD) to better combat and prevent employee misclassification in the state. The Industrial Commission’s Employee Classification Section is responsible for identifying businesses within the State suspected of misclassification. The MOU allows the Employee Classification Section and WHD to share data on companies suspected of misclassification and permits collaboration between the agencies during investigations. The Employee Classification Section is responsible for distributing this information to other state agencies, such as the Department of Labor, Department of Commerce, and Department of Revenue. The agencies believe this MOU will help increase employers’ compliance with paying state and federal taxes, federal wage payment laws, workers’ compensation requirements, and unemployment benefits.
By signing this MOU, North Carolina joins 32 other states currently collaborating with federal officials to prevent employee misclassification. For more information about misclassification of employees as independent contractors and what this MOU could mean for your business, please call us at (919) 828 – 1396.