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NCDOL to Cooperate with Federal Agencies to Crack Down on Employee Misclassification

    Client Alerts
  • September 07, 2016

On Wednesday, the North Carolina Department of Labor (NCDOL) announced the completion of an agreement with the federal DOL to share information intended to identify companies misclassifying employees as independent contractors. The North Carolina General Assembly earlier considered a new law intended to create a special enforcement unit within NCDOL to identify and prosecute companies found not to have paid taxes or provided workers’ compensation and unemployment insurance coverage for workers misclassified as contractors. Although the legislation did not pass, Governor McCrory instructed NCDOL and the Industrial Commission to increase their enforcement efforts in this area.

The new agreement allows information sharing between the agencies. For example, if the IRS finds that a North Carolina employer failed to withhold federal taxes from workers’ wages due to misclassification, it will share this information with state agencies who may then prosecute the company based on state tax and insurance requirements. Practically, this means that one worker who complains that he or she did not receive a particular benefit due to misclassification can lead to a broad investigation of the employer’s practices, involving multiple federal and state agencies.

This new effort reinforces the importance for companies to properly classify their workers. DOL takes the position that all workers are presumed to be employees, and that the company has the burden of proving that they meet the narrow exceptions for contractors. Basically, any work performed that involves control and supervision by the company will be considered employment. While the North Carolina enforcement effort was triggered by reported abuses in the construction industry, its scope applies to a wide range of businesses.