Employers Misclassifying Workers to Avoid Offering Health Coverage

Since the onset of the recession, there has been a surge in worker misclassification litigation and enforcement against employers that are trying to effectively manage their finances, but are incorrectly classifying their workers. There is also concern around the Affordable Care Act’s employer mandate, which may make misclassifications a tempting alternative to offering group health coverage.

The Department of Labor and the Internal Revenue oversee the federal Fair Labor Standards Act, which establishes minimum wage and overtime pay standards and how much private and public employers should pay their employees. At the state level, there are also a slew of regulations that can make any HR professional or benefit plan sponsor concerned.

Linda Doyle, trial partner at international law firm McDermott Will & Emery, says many employers with large teams of individuals in one category – such as trainers in the tech world or sales representatives in product and promotion businesses – have asked how they could come under the ACA’s coverage limits. This has been an area she’s been docking a lot of analysis in.

“There are benefits, but there are also huge costs and potential liabilities if you get this wrong,” says Doyle. “You know saving health insurance money is a way to avoid the teeth of the Affordable Care Act; it may be a laudable goal, but you may be just putting off extensive liability down the line.”

It doesn’t help that many employers are still trying to climb out from the recession.

“Particularly after the last recession, which I think we are technically are still in, there was a lot of headcount management,” Doyle explains. While noting that “‘temporary’ doesn’t necessarily mean ‘independent contractor’, or ‘work-from-home’ doesn’t mean ‘independent contractor’,” she says “there are really some employers that just don’t understand this is a category – even if the employee or individual agrees to it.”

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Jeffrey R. Ungvary President

Jeffrey R. Ungvary