State Broadens Enforcement of Worker Misclassification Issues

August 17, 2010

On May 12, 2010, Governor Jim Doyle signed Senate Bill 672 into law. The new law, which takes effect January 1, 2011, provides the Wisconsin Department of Workforce Development (DWD) with substantial teeth to investigate and address worker misclassification issues on prevailing-wage projects.

The law is based on recommendations from the DWD’s Worker Misclassification Task Force established by the department’s secretary in October 2008. The task force, composed of labor union representatives, private-sector construction businesses, and DWD, Department of Commerce, and Department of Revenue representatives, was charged with examining problems relating to worker misclassification.

Under existing law, employers engaged in prevailing-wage projects can be fined up to $25,000 for misclassifying a worker as an independent contractor. A similar fine can be issued to employers that willfully provide false information to the DWD for the purpose of misclassifying an employee as an independent contractor under state unemployment or worker’s compensation laws. Each law has its own test for employee/independent contractor status, and employers need to be aware of them.

DWD empowered to act
The new law requires the DWD to:

  • Educate employers, employees, non-employees, and the public about the proper classification of persons performing services for an employer
  • Receive and investigate complaints alleging violations of the requirements for proper classification of employees and investigate alleged violations on its own initiative
  • Issue a stop-work order and citation to employers violating a requirement
  • Refer complaints of employee misclassification to other agencies that administer laws involving employee classification matters
  • Cooperate with other state and local agencies in the investigation and enforcement of laws that depend on proper employee classification for enforcement
  • Appoint attorneys to conduct hearings and issue decisions

In addition, the law allows the DWD to require an employer to prove that it has:

  • Maintained records identifying all persons performing work for the employer, including the name, address, and social security number of each person
  • Maintained worker’s compensation coverage required for its employees
  • Provided to the DWD information required for the state hiring reporting system
  • Maintained records of the hours worked by its employees, wages paid, deductions made from wages, and any other information that the employer is required to keep under rules promulgated under “state hours of work” and minimum wage laws
  • Complied with state unemployment provisions

The law further authorizes the DWD to conduct investigations to ensure compliance with the above requirements. In conducting an investigation, the DWD may do any of the following:

  • Enter and inspect any place of employment and examine and copy required records and other records relating to compliance with the worker classification requirements
  • Determine and identity the activities of any person performing work at any location where the work was being performed
  • Interview and obtain written statements from any employer or person performing work or present at any location where the work was being performed with respect to (1) the names and addresses of the workers, (2) the payment of wages to and hours recorded by the workers, and (3) any other information relating to the remuneration of the workers and the nature and extent of the services they performed

If, after an investigation, the DWD determines that an employer failed to comply with any of the worker classification requirements, it may serve notice of its intent to issue a stop-work order at the locations specified in the notice. The employer will then have a limited period of time to prevent the stop-work order from being issued.

Bottom line
This law represents further growth and expansion of government regulation at a time when construction industry employers are already struggling to survive. Employers should review the various tests for independent contractor status, audit their worker classifications, and familiarize themselves with the new law.

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