Trends In Employment Law And Employment Tax

Among our business tax clients, we are seeing a rise in wage and hour litigation, either ancillary to, or independent of, their tax issues. In fact, recently I was giving a presentation to a group of business owners regarding this very issue, and one of the attendees told me that his business headquarters had been visited by the Department of Labor, Wage and Hour Division (DOL/WHD) that very day with a demand for records. What we are seeing at our law office could be coincidental; but, I believe it is the product of both an enhanced enforcement environment at both the federal and state levels, and a highly aggressive labor and employment law plaintiff’s bar. As the former Secretary of Labor, Hilda Solis, said in 2009, “Make no mistake, the DOL is back in the enforcement business.” Solis has since been replaced by Thomas E. Perez, but there is no indication that the DOL is easing its enforcement efforts in the area wage and hour enforcement. The plaintiff’s bar is none the less aggressive, too. In one of our recent cases, an employer who had ostensibly dispensed with one frivolous wage and hour claim was hit with the exact claim by the same plaintiffs, as if they simply went to the next attorney down the street when they didn’t get the answer they wanted.

It also bears keeping in mind that worker classification issues can trigger, not only employment tax issues, but also wage and hour disputes stemming from issues like hours worked, overtime, and finally, meal and rest period.

The IRS, the DOL, and the various states share information regarding worker classification.

Part of the trend of increased employment tax clients with ancillary employment law issues might be due, in part, by this enhanced communication between the IRS, the DOL, and the various state governments.

On September 19, 2011, then IRS Commissioner, Douglas Schulman and then Secretary of Labor, Hilda Solis, signed a Memorandum Of Understanding (MOU) authorizing the sharing of information between the two agencies, in regard to worker classification issues. According to the language of the MOU, the DOL will refer to the IRS information and other data that DOL believes may raise Internal Revenue employment tax compliance issues related to misclassification. The IRS will evaluate referrals provided by the DOL and conduct examinations to determine compliance with employment tax laws. The IRS, in turn, will provide the DOL with data, training materials, and information which may constitute evidence of a violation of any federal criminal law that the DOL enforces. In an equally important statement, the MOU declares that the IRS will “share the employment tax referrals provided by the DOL with the state and municipal taxing agencies.” This last statement should come as no surprise, but what had been perhaps an intuition has been confirmed in the MOU. I.e. that the IRS refers payroll taxes to the states, directly.

They Have an App for That

On a final note, the DOL has developed its own smartphone application or “app” with which workers can chart their time-worked and contact the DOL Wage and Hour Division. Employers should be concerned as to who is verifying when the user of the “app” is accurately clocking in an out. As an enforcement tool, the “app” has a gimmicky feel about it, and essentially serves as a reminder to workers that the Wage and Hour Division is ready to take any possible complaints. Not a bad thing, if the complaints are legitimate; however, many times they are not.

If you have questions about the classification of your workers, employment tax or employment law matters, please connect with me on TaxConnections.

In accordance with Circular 230 Disclosure

Betty Williams has a broad range of experience handling civil and criminal tax controversy matters including income tax, employment tax, sales and use tax, property tax and IRS, FTB, and SBE audits, protests, and appeals. She has represented clients before the U.S. Tax Court and the U.S. District Courts in California. Betty has obtained penalty abatement for numerous clients ranging from a few thousand to more than $2 million in late filing and late payment penalties. She has assisted numerous clients in the United States and abroad in the 2009, 2011 and 2012 IRS and FTB voluntary disclosure initiatives. She also represents foreign financial institutions regarding Foreign Account Tax Compliance Act (FATCA) compliance. She has experience defending criminal tax matters and negotiating plea agreements in areas such as structuring, tax evasion, and the failure to file a tax return.

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