Payroll Fraud Prevention Act of 2017

Summary: Payroll Fraud Prevention Act of 2017 This bill amends the Fair Labor Standards Act of 1938 to require employers to accurately classify their employees or non-employees as employees or independent contractors and to notify such employees or non-employees of their classification. The bill makes it unlawful for any person to: (1) discharge or otherwise discriminate against an employee or non-employee who has filed a complaint with respect to their employment classification, and (2) wrongly classify an employee as a non-employee. The bill doubles the amount of liquidated damages for unpaid wages and misclassifications of employees.   The bill amends the Social Security Act to: (1) require, as a condition for the federal grant program for unemployment compensation administration, auditing and investigative procedures to identify employers who are not registered under state law or who are paying unreported wages; and (2) impose administrative penalties for misclassification of employees or payment of unreported wages without proper recordkeeping.  The bill requires the Department of Labor to report any misclassification of an employee to its Wage and Hour Division. The Wage and Hour Division is then authorized to report a misclassification to the Internal Revenue Service.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Payroll Fraud Prevention Act of 
2017''.

SEC. 2. CLASSIFICATION OF EMPLOYEES AND NON-EMPLOYEES.

    (a) Definitions.--Section 3 of the Fair Labor Standards Act of 1938 
(29 U.S.C. 203) is amended by adding at the end the following:
    ``(z) `Non-employee' means an individual who--
            ``(1) has been engaged, in the course of the trade or 
        business of the person, for the performance of labor or 
        services; and
            ``(2) is not an employee of the person.
    ``(aa) `Covered individual' when used with respect to an employer 
or other person means--
            ``(1) an employee of the employer; or
            ``(2) a non-employee of the person (including a person who 
        is an employer)--
                    ``(A) whom the person has engaged, in the course of 
                the trade or business of the person, for the 
                performance of labor or services; and
                    ``(B)(i) with respect to whom the person is 
                required to file an information return under section 
                6041A(a) of the Internal Revenue Code of 1986; or
                    ``(ii) who is providing labor or services to the 
                person through an entity that is a trust, estate, 
                partnership, association, company, or corporation (as 
                such terms are used in section 7701(a)(1) of the 
                Internal Revenue Code of 1986) if--
                            ``(I) such individual has an ownership 
                        interest in the entity;
                            ``(II) creation or maintenance of such 
                        entity is a condition for the provision of such 
                        labor or services to the person; and
                            ``(III) the person would be required to 
                        file an information return for the entity under 
                        section 6041A(a) of the Internal Revenue Code 
                        of 1986 if the entity were an individual.''.
    (b) Classification as Employees.--Section 11(c) of the Fair Labor 
Standards Act of 1938 (29 U.S.C. 211(c)) is amended--
            (1) by striking ``(c) Every employer subject to any 
        provision of this Act or of any order issued under this Act'' 
        and inserting the following:
    ``(c) Recordkeeping; Classification; Notice.--
            ``(1) Recordkeeping.--Every person subject to any provision 
        of this Act or of any order issued under this Act''; and
            (2) by adding at the end the following:
            ``(2) Classification.--Every person (including every 
        employer and enterprise), who employs any employee engaged in 
        commerce or in the production of goods for commerce or engages 
        any non-employee engaged in commerce or in the production of 
        goods for commerce, shall accurately classify each covered 
        individual as an employee or a non-employee (as the case may 
        be).
            ``(3) Notice.--
                    ``(A) In general.--Every person subject to any 
                provision of this Act or of any order issued under this 
                Act shall provide the notice described in subparagraph 
                (C) to each employee of the person and each individual 
                classified by the person as a non-employee under 
                paragraph (2) and maintain a copy of such notice as a 
                required record under paragraph (1).
                    ``(B) Timing of notice.--
                            ``(i) In general.--The notice described in 
                        subparagraph (A) shall be provided, at a 
                        minimum, to each covered individual not later 
                        than 6 months after the date of enactment of 
                        the Payroll Fraud Prevention Act of 2017, and 
                        thereafter--
                                    ``(I) for each new employee, upon 
                                employment; and
                                    ``(II) for each new non-employee, 
                                upon commencement of the labor or 
                                services provided by the non-employee.
                            ``(ii) Change in status.--Each person 
                        required to provide a notice under subparagraph 
                        (A) to a covered individual shall also provide 
                        such notice to such individual upon changing 
                        the status of such individual as an employee or 
                        a non-employee.
                    ``(C) Contents of notice.--The notice required 
                under this paragraph shall be in writing and shall--
                            ``(i) inform the covered individual of the 
                        classification of such individual, by the 
                        person submitting the notice, as an employee or 
                        a non-employee;
                            ``(ii) include a statement directing such 
                        individual to the Department of Labor website 
                        established under section 3 of the Payroll 
                        Fraud Prevention Act of 2017, for the purpose 
                        of providing further information about the 
                        legal rights of an employee;
                            ``(iii) include the address and telephone 
                        number for the applicable local office of the 
                        Department of Labor; and
                            ``(iv) include for each covered individual 
                        classified as a non-employee by the person 
                        providing the notice, the following statement: 
                        `Your rights to wage, hour, and other labor 
                        protections depend upon your proper 
                        classification as an employee or a non-
                        employee. If you have any questions or concerns 
                        about how you have been classified or suspect 
                        that you may have been misclassified, contact 
                        the U.S. Department of Labor.'.
                    ``(D) Presumption.--
                            ``(i) In general.--For purposes of this Act 
                        and the regulations or orders issued under this 
                        Act, a covered individual to whom a person is 
                        required to provide a notice under subparagraph 
                        (A) shall be presumed to be an employee of the 
                        person if the person has not provided the 
                        individual with such notice within the time 
                        required under subparagraph (B).
                            ``(ii) Rebuttal.--The presumption under 
                        clause (i) shall be rebutted only through the 
                        presentation of clear and convincing evidence 
                        that a covered individual described in such 
                        subparagraph is not an employee of the 
                        person.''.
    (c) Special Prohibited Acts.--Section 15(a) of the Fair Labor 
Standards Act of 1938 (29 U.S.C. 215(a)) is amended--
            (1) by striking paragraph (3) and inserting the following:
            ``(3) to discharge or in any other manner discriminate 
        against any covered individual (including an employee) because 
        such individual has--
                    ``(A) opposed any practice, filed any petition or 
                complaint, or instituted or caused to be instituted any 
                proceeding--
                            ``(i) under or related to this Act 
                        (including concerning the status of a covered 
                        individual as an employee or a non-employee for 
                        purposes of this Act); or
                            ``(ii) concerning the status of a covered 
                        individual as an employee or a non-employee for 
                        employment tax purposes within the meaning of 
                        subtitle C of the Internal Revenue Code of 
                        1986;
                    ``(B) testified or is about to testify in any 
                proceeding described in subparagraph (A); or
                    ``(C) served, or is about to serve, on an industry 
                committee;'';
            (2) in paragraph (5), by striking the period at the end and 
        inserting ``; and''; and
            (3) by adding at the end the following:
            ``(6) to wrongly classify an employee of the person as a 
        non-employee in accordance with section 11(c)(2).''.
    (d) Special Penalty for Certain Misclassification, Recordkeeping, 
and Notice Violations.--Section 16 of the Fair Labor Standards Act of 
1938 (29 U.S.C. 216) is amended--
            (1) in subsection (b)--
                    (A) in the sixth sentence, by striking ``any 
                employee'' each place the term occurs and inserting 
                ``any covered individual'';
                    (B) in the fourth sentence--
                            (i) by striking ``employees'' and inserting 
                        ``covered individual''; and
                            (ii) by striking ``he gives his consent'' 
                        and inserting ``such covered individual 
                        consents'';
                    (C) in the third sentence--
                            (i) by striking ``either of the preceding 
                        sentences'' and inserting ``any of the 
                        preceding sentences'';
                            (ii) by striking ``one or more employees'' 
                        and inserting ``one or more covered 
                        individuals''; and
                            (iii) by striking ``in behalf of himself or 
                        themselves and other employees'' and inserting 
                        ``on behalf of such covered individual or 
                        individuals and other covered individuals''; 
                        and
                    (D) by inserting after the first sentence the 
                following: ``Such liquidated damages are doubled 
                (subject to section 11 of the Portal-to-Portal Act of 
                1947 (29 U.S.C. 260)) where, in addition to violating 
                the provisions of section 6 or 7, the employer has 
                violated the provisions of section 15(a)(6) with 
                respect to such employee or employees.''; and
            (2) in subsection (e), by striking paragraph (2) and 
        inserting the following:
            ``(2) Any person who violates section 6, 7, 11(c), or 
        15(a)(6) shall be subject to a civil penalty, for each employee 
        or other individual who was the subject of such a violation, in 
        an amount--
                    ``(A) not to exceed $1,100; or
                    ``(B) in the case of a person who has repeatedly or 
                willfully committed such violation, not to exceed 
                $5,000.''.

SEC. 3. EMPLOYEE RIGHTS WEBSITE.

    Not later than 180 days after the date of enactment of this Act, 
the Secretary of Labor shall establish a single webpage on the 
Department of Labor website that summarizes in plain language the 
rights of employees and non-employees under the Fair Labor Standards 
Act of 1938 (29 U.S.C. 201 et seq.), including the rights described in 
the amendments made by section 2.

SEC. 4. MISCLASSIFICATION OF EMPLOYEES FOR UNEMPLOYMENT COMPENSATION 
              PURPOSES.

    (a) In General.--Section 303(a) of the Social Security Act (42 
U.S.C. 503(a)) is amended--
            (1) in paragraph (11)(B), by striking the period and 
        inserting ``; and'';
            (2) in paragraph (12), by striking the period and inserting 
        ``; and''; and
            (3) by adding after paragraph (12) the following:
            ``(13)(A) Such auditing and investigative procedures as may 
        be necessary to identify employers that have not registered 
        under the State law or that are paying unreported wages, where 
        these actions or omissions by the employers have the effect of 
        excluding employees from unemployment compensation coverage; 
        and
            ``(B) The making of quarterly reports to the Secretary of 
        Labor (in such form as the Secretary of Labor may require) 
        describing the results of the procedures under subparagraph 
        (A); and
            ``(14) The establishment of administrative penalties for 
        misclassifying employees, or paying unreported wages to 
        employees without proper recordkeeping, for unemployment 
        compensation purposes.''.
    (b) Review of Auditing Programs.--The Secretary of Labor shall 
include, in the Department of Labor's system for measuring the 
performance of States in conducting unemployment compensation tax 
audits, a specific measure of the effectiveness of States in 
identifying the underreporting of wages and the underpayment of 
unemployment compensation contributions (including the effectiveness of 
States in identifying instances of such underreporting or underpayments 
despite the absence of canceled checks, original time sheets, or other 
similar documentation).
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by subsection (a) shall take effect 12 months 
        after the date of enactment of this Act.
            (2) Exception.--If the Secretary of Labor finds that 
        legislation is necessary for the unemployment compensation law 
        of a State to comply with the amendments made by subsection 
        (a), such amendments shall not apply with respect to such law 
        until the later of--
                    (A) the day after the close of the first regular 
                session of the legislature of such State that begins 
                after the date of enactment of this Act; or
                    (B) 12 months after the date of enactment of this 
                Act.
    (d) Definition of State.--For purposes of this section, the term 
``State'' has the meaning given the term in section 3306(j) of the 
Internal Revenue Code of 1986.

SEC. 5. DEPARTMENT OF LABOR COORDINATION, REFERRAL, AND REGULATIONS.

    (a) Coordination and Referral.--Notwithstanding any other provision 
of law, any office, administration, or division of the Department of 
Labor that, while in the performance of its official duties, obtains 
information regarding the misclassification by a person subject to the 
provisions of the Fair Labor Standards Act of 1938 (29 U.S.C. 201 et 
seq.), or any order issued under such Act of any individual regarding 
whether such individual is an employee or a non-employee engaged in the 
performance of labor or services for purposes of section 6 or 7 of such 
Act (29 U.S.C. 206, 207), or in records required under section 11(c) of 
such Act (29 U.S.C. 211(c)), shall report such information to the Wage 
and Hour Division of the Department of Labor. The Wage and Hour 
Division may report such information to the Internal Revenue Service as 
the Wage and Hour Division considers appropriate.
    (b) Regulations.--The Secretary of Labor shall promulgate 
regulations to carry out this Act and the amendments made by this Act.

SEC. 6. TARGETED AUDITS.

    The audits of employers subject to the Fair Labor Standards Act of 
1938 (29 U.S.C. 201 et seq.) that are conducted by the Wage and Hour 
Division of the Department of Labor shall include certain industries 
with frequent incidence of misclassifying employees as non-employees, 
as determined by the Secretary of Labor.