The Workers’ Compensation Division of the Tennessee Department of Labor & Workforce Development has put into place new procedures to identify employers who engage in payroll fraud such as intentionally misclassifying workers as independent contractors, failing to report all wages paid, misrepresenting the kind of work performed, or paying workers “under the table.” These practices are typically used to avoid paying workers’ compensation and unemployment insurance tax premiums. 

“We are working aggressively to stop misclassification fraud by employers. When these unethical practices are identified, the Division of Workers’ Compensation of the Department of Labor & Workforce Development will assess administrative penalties for misclassification as well as refer cases for prosecution,” said Administrator for Workers’ Compensation Abbie Hudgens. 

The Employee Misclassification Advisory Task Force made recommendations that led to legislation to improve the state’s efforts to reduce misclassification fraud. The Department of Labor entered into a settlement that assessed a penalty of more than $300,000 against a drywall contractor who materially understated his payroll to his insurance carrier. The settlement is the largest ever of the department’s Employee Misclassification Education and Enforcement Fund. 

The Employee Misclassification Advisory Task Force, created by the General Assembly in 2010, made recommendations that led to legislation to improve the state’s efforts to reduce misclassification fraud. 

The Task Force submitted three annual reports to the Legislature – the latest on January 30. The following are among actions taken by the department based on Task Force recommendations. 

§  Establish a referral process for possible criminal prosecution:

Workers’ Compensation has referred cases to the Tennessee Bureau of Investigation or the appropriate District Attorney General for any action deemed necessary under any applicable criminal law. 

§  Hire additional investigators:

Three investigators, one of whom is bilingual, have been hired under the legislation since July 2013.

 §  Procure fraud detection software:

The Workers’ Compensation Division is in the last phase of acquiring this software. 

§  Launch a public awareness initiative:

o    The Workers’ Compensation division began a speaking tour in the summer of 2013 in which representatives from the division and the Tennessee Department of Commerce and Insurance spoke at conferences and other venues across the state. These speakers continue to be available for future presentations.

o    The division created a Website that provides useful distinctions between employees and independent contractors.

o    The division offers a toll-free number, 800/332-2667, and a tip form, for citizens to report a business suspected of misclassifying its workers. 

Although the Employee Misclassification Advisory Task Force is scheduled to sunset on June 30, most of the current task force members have agreed to participate on a new Employee Misclassification Advisory Committee.