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June 22, 2010 12:00 PM, EDT

Senate Bill Targets Employee Misclassification

A Senate bill that supporters said would make it easier for federal regulators to catch employers who misclassify their employees as independent contractors also would help ensure a “level playing field in the marketplace,” a top official with the Department of Labor told a Senate committee.

“During this fragile economic recovery, workers are too often exploited and caused to lose out on the benefits they rightfully earned, while employers who do right by their employees are placed at a competitive disadvantage that they cannot afford,” Seth Harris, Deputy Secretary of Labor, told the Senate Committee on Health, Education, Labor and Pensions.

Harris testified at a committee hearing that would amend the Fair Labor Standards Act of 1938 to require employers to keep records on non-employees who are paid to perform labor or services and provide civil penalties for employers who misclassify employees as non-employees. The bill, introduced in April, has not yet been approved by the committee.

Harris, speaking at the Thursday hearing, testified that unscrupulous employers can hurt employees by not paying them minimum wage or for overtime, and by not providing them such benefits as health insurance, workers’ compensation, or unemployment insurance.

Misclassified contractors also reduce revenues flowing into federal and state coffers because employers avoid paying unemployment taxes, workers’ compensation premiums, and payroll taxes, Harris said.