A common employer response to the burdens and frustrations of modern employment law is to consider divesting, or to actually attempt to divest, itself of some or all of its employees. Of course, the practical problem becomes how to then carry on the business. Two solutions are equally commonly proposed to address that problem. First is the use of "leased" employees formally employed by another entity which, presumably, will bear the legal responsibility for them. If not done correctly, this approach raises the possibility that both entities will be found to be "joint employers," a concept beyond the scope of this discussion. Second, is the use of "independent contractors," who (at least largely) are by definition not "employees" subject to the panoply of federal, state and local employment laws and who are treated very differently than employees for tax, unemployment compensation, workers compensation and other purposes.
Classifying workers as independent contractors has become increasingly common in recent years, to the point where we are now beginning to see the inevitable regulatory push-back. For example, in February 2011, the Construction Workplace Misclassification Act took effect in Pennsylvania, severely limiting the ability to qualify as an independent contractor and enhancing penalties for those who misclassify, or knowingly contract with those who misclassify, construction industry employees as independent contractors. In September 2011, the Internal Revenue Service and U.S. Department of Labor announced a coordinated program of education, audit and enforcement directed at the misclassification of employees as independent contractors under the federal tax and wage & hour laws.
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