One Way to ID Scofflaw Employers: IRS Co Op

Al Capone wasn't brought down on racketeering charges.

No, it was income taxes.

And now scofflaw employers who misclassify their workers as independent contractors will face similar fate if agreements between The U.S. Department of Labor (DOL), the Internal Revenue Service (IRS) and labor departments of up to 11 states prove fruitful.

U.S. Labor Secretary Hilda Solis said at a ceremony in Washington, D.C., that she signed memorandums of understanding with the IRS and labor officials in Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington state.

Solis said state labor officials in Hawaii, Illinois and Montana, as well as New York Attorney General Eric Schneiderman, also have agreed to sign memorandums of understanding with the U.S. Labor Department's Wage and Hour Division.

The agreements call for the state agencies and the IRS to share information with five federal agencies: the Wage and Hour Division, the Employee Benefits Security Administration, the Occupational Safety and Health Administration, the Office of Federal Contract Compliance Programs and the Office of the Solicitor General.

Under the terms of the memorandum:

• The IRS will evaluate and classify referrals made by the DOL and conduct examinations at IRS discretion.
• The IRS, at its discretion, will share employment tax referrals with state and municipal taxing agencies that are part of the agreements.
• The IRS will provide annual reports to the DOL summarizing the results of the referrals.
• The IRS will alert the DOL when employers file lawsuits following an examination based on a Labor Department referral.

The program has opposition from Associated General Contractors (ACG), a lobbying group for the construction industry. They're concerned that some employers will be unwittingly penalized due to the complexity of employment laws because the definitions of employee and independent contractor are different between IRS rules and the various state rules.

I disagree.

The agreements between the Feds and the various states call for information sharing only. It will be up to the state labor departments to bring enforcement actions within the context of their own laws.

Once the unscrupulous contractors start getting wind of cases being filed as a result of this information sharing they will either start complying, or will find other ways to evade the law and compete unfairly.

One element that I would urge state labor departments that are operating under these agreements is to institute an amnesty program that would allow formerly non-compliant employers, whether intentional or not, to mea culpa and bring their businesses into compliance.