DOL and IRS Join Forces to Combat Worker Misclassification

On September 19, 2011 the U.S. Department of Labor and the Internal Revenue Service signed a memorandum of understanding (MOU) describing their joint initiative concerning the misclassification of workers as independent contractors. Under the agreement, the agencies have pledged to share information and coordinate enforcement efforts to reduce the incidence of misclassification, reduce the tax gap, and improve compliance with federal tax and labor laws. The DOL also has signed or agreed to sign similar memoranda with Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah, and Washington to coordinate efforts with state taxing and labor authorities. This intra-agency referral and coordination effort, which grew out of the federal agencies’ “misclassification initiative,” increases the likelihood of multi-agency scrutiny and enforcement proceedings related to worker classification and employment-tax compliance issues, with the desired outcome of enhancing tax revenue.

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