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Worker Win: MD Institutes New Penalties and Fines for Employee Misclassification

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This year, Maryland joined the surge in states cracking down on employee misclassification, and earlier this month the Maryland General Assembly approved new sanctions on employers who misclassify their workers as independent contractors. The “Recovery of Benefits and Penalties for Fraud Act” implements penalties for employers who knowingly misclassify. It also adds a 2% interest rate on outstanding unemployment contributions:

If an employer fails to properly classify an individual as an employee, it will, of course, be required to make the necessary unemployment contribution payments to the State, however, the Act also provides that the contributions will now be subject to an interest rate of two percent per month if the employer fails to pay the outstanding contributions within 45 days after the Maryland Department of Labor, Licensing and Regulation (“DLLR”) issues an assessment to the employer.

Additionally, if an employer knowingly misclassifies workers, the employer will be subject to a civil penalty of up to $5,000 per employee. For subsequent knowing violations, the DLLR may assess double penalties, that is, up to $10,000 per employee who is misclassified. Additionally, the Act provides that any individual who knowingly advises an employer to violate the Act will be subject to a civil penalty of up to $20,000. The Act defines “knowingly” as having “actual knowledge, deliberate ignorance, or reckless disregard for the truth.”

The crackdown on employee misclassification has been spearheaded by the U.S. Department of Labor (DOL), which partnered with the IRS and 35 other states (so far) to combat the problem:

A recent Treasury Inspector General for Tax Administration (TIGTA) report found that an estimated 3.4 million employees are classified as independent contractors when they should be reported as employees—costing the U.S. an estimated $54 billion in underpayment of employment taxes.

In response, the U.S. Department of Labor has partnered with the IRS and 35 states to ensure workers get their entitled wages, benefits, and protections.

There remains some degree of legal ambiguity when it comes to employee misclassification, making standards of enforcement a challenge, according to the Washington City Paper:

With the differences in federal and local law, the misclassification gray area is vast and the scope of the problem is unclear. Because “misclassification is not in and of itself a violation of the statutes that DOL enforces, there is no data on the number of enforcement cases in which we’ve found misclassification,” a DOL spokesperson says by email. Many lawsuits are settled out of court, keeping the outcome from the public, but the suits that do make it through the court process offer an insight into how judges are interpreting the FLSA.

Still, the TIGTA report sheds light on the problem and the DOL is taking appropriate action.

For more on the DOL’s misclassification initiative they provide an online resource. The TIGTA report can also be read in its entirety.


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