Texas Receives “High Performance Bonus” Under Federal Worker Misclassification Initiative:
The U.S. Department of Labor (DOL) recently awarded $10.2 million in grants to 19 states as part of the Department’s Misclassification Initiative. The Misclassification Initiative was created in 2011, as part of a Memorandum of Understanding (MOU) signed between the DOL and IRS. The MOU formed an agreement between the two agencies to work together to reduce the incidence of worker misclassification, by sharing information and coordinating enforcement efforts.
A worker misclassification occurs when an
employer or business owner classifies a worker on their tax returns as
something other than an employee (such as an independent contractor),
when they should be classified as an employee. Generally, the
distinction between an employee and independent contractor is in how
much control the person paying for the service has over (1) what work
will be done and (2) how that work will be done. The more control the
person paying has over the work being done, the more likely it is that
the person providing the service should be classified as an employee.
From the worker’s perspective,
misclassification can mean denial from benefits and programs such as
family medical leave, overtime, minimum wage, and unemployment
insurance. From the government’s perspective, misclassification leads to
a substantial loss to the Treasury by way of lost Social Security,
Medicare, unemployment insurance, and worker’s compensation funds.
While the Misclassification Initiative was
started in 2011, this year is the first year that individual states
were eligible to receive grant funding for their efforts to decrease
worker misclassification. Although several states already had existing
programs designed to reduce misclassification, under the federal
Misclassification Initiative individual grants up to $500,000 were
awarded to 19 states under a competitive award process.
The Misclassification Initiative also
offers additional grant funding to states through its “High Performance
Bonus” program. This bonus program is based off the Federal
Supplemental Nutrition Assistance Program (SNAP), formerly called the
food stamp program, which also provides bonuses for high performing
states. So far, four states (Maryland, New Jersey, Texas, and Utah) have
received such bonuses. Of those states, Texas has received $775,529 in
bonuses, which is almost $300,000 more than the next highest recipient,
New Jersey. According to the DOL the bonuses are awarded to the states
that are most successful in detecting and prosecuting employers that
fail to pay taxes due to misclassification. The bonus program is
designed to give states both an extra incentive to carry out enforcement
actions and additional funds to upgrade their misclassification
If you’re unsure how your workers should be classified and would like assistance, please contact our office.