Independent Contractor Misclassification and Compliance News: April, 2020

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web.

1. CARES Act Provides Benefits to the Independent Contractors

In April, Congress passed and the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which provides over $2 trillion in relief and support to individuals and businesses affected by the COVID-19 pandemic. The CARES Act provides benefits to self-employed workers and independent contractors including:

• Paid sick and family leave (in the form of a tax credit)
• Unemployment benefits
• Deferral of payroll taxes
• Loans
• Access to retirement funds

For more information, please see The CARES Act: What Independents Need to Know Now and The CARES Act: What it Means for Self-Employed, Freelancers, Independent Workers

2. Virginia Adopts Three Bills to Prevent Misclassification of Employees

In August 2019, Virginia Governor Ralph Northam created a task force to look at ways to protect employees from being misclassified as independent contractors and to combat payroll fraud.

In November 2019, the task force issued a number of recommendations including creating a private cause of action for misclassified individuals, providing whistleblower protections for those reporting suspected misclassification, and improving investigative and enforcement procedures.

Virginia recently enacted three bills to help prevent the misclassification of employees:

1. HB 984 creates a private cause of action for workers who believe they have been misclassified.
2. HB 1199 prohibits retaliation against workers who report that they have been misclassified; and
3. HB1407 says that the Virginia Department of Taxations has the authority to oversee investigations and impose penalties.

These bills don’t make it harder for employers to classify workers as independent contractors, but they make it harder on employers who do misclassify workers as independent contractors.

3. California Urges Independent Contractors to File for Unemployment to Find Out If They are Misclassified

In an extraordinary effort that puts every California company who engaged with an independent contractor at risk of an audit by California’s Employment Development Department (EDD), EDD urged independent contractors to file a claim for unemployment and EDD would look into whether the independent contractor was misclassified.

In general, independent contractors are not eligible for unemployment benefits unless they pay unemployment taxes. During the COVID-19 crisis, independent contractors are eligible for unemployment benefits under the CARES Act. California seems to be using the COVID-19 crisis to identify workers who might be misclassified, which also puts companies that properly engage with independent contractors in the spotlight.