The NH Department of Labor and the US Department of Labor entered into a memorandum of understanding (MOU) for the purpose of preventing misclassification of workers as independent contractors or some other nonemployee status. The MOU calls for the state and federal agencies to share information and to coordinate their efforts of enforcement. It became effective on November 12, 2014 and is for a three year term.
This memorandum between the NH DOL and the US DOL is consistent with the Misclassification Initiative launched by the federal government in 2011. The US DOL announced back in September 2011 that it would be entering into MOUs with states and the IRS (MOU) to curb misclassification of workers. As of today, NH is the seventeenth state to enter into such an MOU. Other states include Hawaii, California, Washington, Montana, Utah, Colorado, Minnesota, Iowa, Missouri, Illinois, Louisiana, Georgia, Maryland, New York, Connecticut, and Massachusetts. When an employee is misclassified, an employer may not be paying the proper overtime compensation, FICA and unemployment insurance taxes, or worker’s compensation premiums. The goal with these agency agreements is to improve employer compliance with labor laws, address tax gaps, and insure required payments to employee programs.
The MOU signed by NH specifically considers enforcement measures and the terms provide that to the extent allowable under law,
- The agencies may conduct joint investigations periodically in the state of NH, if opportunity provides.
- The agencies may coordinate their respective enforcement activities and assist each other with enforcement.
- The agencies may make referrals of potential violations of each other’s statutes.
Employers should review how they are classifying their workers. The NH DOL considers every worker an employee unless it can be shown that the person qualifies as an independent contractor by meeting all the criteria specified under NH 275:4. Be reminded that the New Hampshire Employment Security (NHES) employs the “ABC” test – RSA 282:A9, III — and the IRS another test. Consequences for misclassification include civil penalties, payment of back taxes (plus interest and penalties), liability for back pay, unpaid overtime, or illegal deductions, contributions to fringe benefit plan for period of misclassification, and other potential liability. With misclassification on the government’s radar, employers should be alert.