II 

112TH CONGRESS 

1ST SESSION S. 770 

To amend the Fair Labor Standards Act of 1938 to ensure that employees 

are not misclassified as non-employees, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 8, 2011 

Mr. BROWN of Ohio (for himself, Mr. HARKIN, and Mr. BLUMENTHAL) introduced the following bill; which was read twice and referred to the Committee on Health, Education, Labor, and Pensions 

A BILL 

To amend the Fair Labor Standards Act of 1938 to ensure 

that employees are not misclassified as non-employees, 

and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Payroll Fraud Preven5 tion Act’’. 


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1 SEC. 2. CLASSIFICATION OF EMPLOYEES AND NON-EM2 PLOYEES. 

3 (a) DEFINITIONS.—Section 3 of the Fair Labor 

4 Standards Act of 1938 (29 U.S.C. 203) is amended by 

5 adding at the end the following: 

6 ‘‘(z) ‘Non-employee’ means an individual who— 

7 ‘‘(1) a person has engaged, in the course of the 

8 person’s trade or business, for the performance of 

9 labor or services; and 

10 ‘‘(2) is not an employee of the person. 

11 ‘‘(aa) ‘Covered individual’ when used with respect to 

12 an employer or other person means— 

13 ‘‘(1) an employee of the employer; or 

14 ‘‘(2) a non-employee of the person (including a 

15 person who is an employer)— 

16 ‘‘(A) whom the person has engaged, in the 

17 course of the person’s trade or business, for the 

18 performance of labor or services; and 

19 ‘‘(B)(i) with respect to whom the person is 

20 required to file an information return under 

21 section 6041A(a) of the Internal Revenue Code 

22 of 1986; or 

23 ‘‘(ii) who is providing labor or services to 

24 the person through an entity that is a trust, es25 tate, partnership, association, company, or cor26 poration (as such terms are used in section 


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1 7701(a)(1) of the Internal Revenue Code of 

2 1986) if— 

3 ‘‘(I) such individual has an ownership 

4 interest in the entity; 

5 ‘‘(II) creation or maintenance of such 

6 entity is a condition for the provision of 

7 such labor or services to the person; and 

8 ‘‘(III) the person would be required to 

9 file an information return for the entity 

10 under section 6041A(a) of the Internal 

11 Revenue Code of 1986 if the entity were 

12 an individual.’’. 

13 (b) CLASSIFICATION AS EMPLOYEES.—Section 11(c) 

14 of the Fair Labor Standards Act of 1938 (29 U.S.C. 

15 211(c)) is amended— 

16 (1) by striking ‘‘(c) Every employer subject to 

17 any provision of this Act or of any order issued 

18 under this Act’’ and inserting the following: 

19 ‘‘(c) RECORDKEEPING; CLASSIFICATION; NOTICE.— 

20 ‘‘(1) RECORDKEEPING.—Every person subject 

21 to any provision of this Act or of any order issued 

22 under this Act’’; and 

23 (2) by adding at the end the following: 

24 ‘‘(2) CLASSIFICATION.— 


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1 ‘‘(A) IN GENERAL.—Every person (includ2 ing every employer and enterprise), who em3 ploys any employee engaged in commerce or in 

4 the production of goods for commerce or en5 gages any non-employee engaged in commerce 

6 or in the production of goods for commerce, 

7 shall— 

8 ‘‘(i) accurately classify all covered in9 dividuals as employees or non-employees 

10 (as the case may be); 

11 ‘‘(ii) provide, to each covered indi12 vidual, a written notice that— 

13 ‘‘(I) informs the covered indi14 vidual of the individual’s classifica15 tion, by the person submitting the no16 tice, as an employee or a non-em17 ployee; 

18 ‘‘(II) includes a statement direct19 ing such individual to the Department 

20 of Labor Web site established under 

21 section 3 of the Payroll Fraud Pre22 vention Act, or other appropriate re23 sources, for the purpose of providing 

24 further information about the rights 

25 of employees under the law; 


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1 ‘‘(III) includes the address and 

2 telephone number for the applicable 

3 local office of the Department of 

4 Labor; and 

5 ‘‘(IV) includes for each covered 

6 individual classified as a non-employee 

7 by the person providing the notice, the 

8 following statement: ‘Your rights to 

9 wage, hour, and other labor protec10 tions depend upon your proper classi11 fication as an employee or non-em12 ployee. If you have any questions or 

13 concerns about how you have been 

14 classified or suspect that you may 

15 have been misclassified, contact the 

16 U.S. Department of Labor.’; and 

17 ‘‘(iii) maintain a copy of such notice 

18 as a required record under paragraph (1). 

19 ‘‘(B) TIMING OF NOTICE.— 

20 ‘‘(i) IN GENERAL.—The notice de21 scribed in subparagraph (A)(ii) shall be 

22 provided, at a minimum, not later than 6 

23 months after the date of enactment of the 

24 Payroll Fraud Prevention Act, and there25 after— 


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1 ‘‘(I) for new employees, upon em2 ployment; and 

3 ‘‘(II) for new non-employees, 

4 upon commencement of the labor or 

5 services provided by the non-employee. 

6 ‘‘(ii) CHANGE IN STATUS.—Each per7 son required to provide a notice under sub8 paragraph (A)(ii) to a covered individual 

9 shall also provide such notice to such indi10 vidual upon changing such individual’s sta11 tus as an employee or non-employee. 

12 ‘‘(C) PRESUMPTION.— 

13 ‘‘(i) IN GENERAL.—For purposes of 

14 this Act and the regulations or orders 

15 issued under this Act, a covered individual 

16 to whom a person is required to provide a 

17 notice under subparagraph (A)(ii) shall be 

18 presumed to be an employee of the person 

19 if the person has not provided the indi20 vidual with such notice within the time re21 quired under subparagraph (B). 

22 ‘‘(ii) REBUTTAL.—The presumption 

23 under clause (i) shall be rebutted only 

24 through the presentation of clear and con25 vincing evidence that a covered individual 


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1 described in such subparagraph is not an 

2 employee of the person.’’. 

3 (c) SPECIAL PROHIBITED ACTS.—Section 15(a) of 

4 the Fair Labor Standards Act of 1938 (29 U.S.C. 215(a)) 

5 is amended— 

6 (1) by striking paragraph (3) and inserting the 

7 following: 

8 ‘‘(3) to discharge or in any other manner dis9 criminate against any covered individual (including 

10 an employee) because such individual has— 

11 ‘‘(A) opposed any practice, or filed any pe12 tition or complaint or instituted or caused to be 

13 instituted any proceeding— 

14 ‘‘(i) under or related to this Act (in15 cluding concerning a covered individual’s 

16 status as an employee or non-employee for 

17 purposes of this Act); or 

18 ‘‘(ii) concerning a covered individual’s 

19 status as an employee or non-employee for 

20 employment tax purposes within the mean21 ing of subtitle C of the Internal Revenue 

22 Code of 1986; or 

23 ‘‘(B) testified or is about to testify in any 

24 proceeding described in subparagraph (A); or 


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1 ‘‘(C) served, or is about to serve, on an in2 dustry committee;’’; 

3 (2) in paragraph (5), by striking the period at 

4 the end and inserting ‘‘; and’’; and 

5 (3) by adding at the end the following: 

6 ‘‘(6) to wrongly classify an employee of the per7 son as a non-employee in accordance with section 

8 11(c)(2).’’. 

9 (d) SPECIAL PENALTY FOR CERTAIN

10 MISCLASSIFICATION, RECORDKEEPING, AND NOTICE VIO11 LATIONS.—Section 16 of the Fair Labor Standards Act 

12 of 1938 (29 U.S.C. 216) is amended— 

13 (1) in subsection (b)— 

14 (A) in the sixth sentence, by striking ‘‘any 

15 employee’’ each place the term occurs and in16 serting ‘‘any covered individual’’; 

17 (B) in the fourth sentence, by striking 

18 ‘‘employee’’ and inserting ‘‘covered individual’’; 

19 (C) in the third sentence— 

20 (i) by striking ‘‘either of the preceding 

21 sentences’’ and inserting ‘‘any of the pre22 ceding sentences’’; 

23 (ii) by striking ‘‘one or more employ24 ees’’ and inserting ‘‘one or more covered 

25 individuals’’; and 


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1 (iii) by striking ‘‘other employees’’ 

2 and inserting ‘‘other covered individuals’’; 

3 and 

4 (D) by inserting after the first sentence 

5 the following: ‘‘Such liquidated damages are 

6 doubled (subject to section 11 of the Portal-to7 Portal Pay Act of 1947 (29 U.S.C. 260)) 

8 where, in addition to violating the provisions of 

9 section 6 or 7, the employer has violated the 

10 provisions of section 15(a)(6) with respect to 

11 such employee or employees.’’; and 

12 (2) in subsection (e), by striking paragraph (2) 

13 and inserting the following: 

14 ‘‘(2) Any person who violates section 6, 7, 11(c), or 

15 15(a)(6) shall be subject to a civil penalty, for each em16 ployee or other individual who was the subject of such a 

17 violation, in an amount— 

18 ‘‘(A) not to exceed $1,100; or 

19 ‘‘(B) in the case of a person who has repeatedly 

20 or willfully committed such violation, not to exceed 

21 $5,000.’’. 

22 SEC. 3. EMPLOYEE RIGHTS WEB SITE. 

23 Not later than 180 days after the date of enactment 

24 of this Act, the Secretary of Labor shall establish, a single 

25 Web page on the Department of Labor Web site that sumVerDate Mar 15 2010 21:50 Apr 11, 2011 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S770.IS S770

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1 marizes in plain language the rights of employees and non2 employees under the Fair Labor Standards Act of 1938, 

3 including the rights described in the amendments made 

4 by section 2. 

5 SEC. 4. MISCLASSIFICATION OF EMPLOYEES FOR UNEM6 PLOYMENT COMPENSATION PURPOSES. 

7 (a) IN GENERAL.—Section 303(a) of the Social Secu8 rity Act (42 U.S.C. 503(a)) is amended— 

9 (1) in paragraph (10), by striking the period 

10 and inserting ‘‘; and’’; and 

11 (2) by adding after paragraph (10) the fol12 lowing: 

13 ‘‘(11)(A) Such auditing and investigative proce14 dures as may be necessary to identify employers that 

15 have not registered under the State law or that are 

16 paying unreported wages, where these actions or 

17 omissions by the employers have the effect of exclud18 ing employees from unemployment compensation 

19 coverage; and 

20 ‘‘(B) the making of quarterly reports to the 

21 Secretary of Labor (in such form as the Secretary 

22 of Labor may require) describing the results of the 

23 procedures under subparagraph (A); and 

24 ‘‘(12) the establishment of administrative pen25 alties for misclassifying employees, or paying unreVerDate Mar 15 2010 21:50 Apr 11, 2011 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S770.IS S770

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1 ported wages to employees without proper record2 keeping, for unemployment compensation pur3 poses.’’. 

4 (b) REVIEW OF AUDITING PROGRAMS.—The Sec5 retary of Labor shall include, in the Department of La6 bor’s system for measuring States’ performance in con7 ducting unemployment compensation tax audits, a specific 

8 measure of their effectiveness in identifying the under9 reporting of wages and the underpayment of unemploy10 ment compensation contributions (including their effec11 tiveness in identifying instances of such underreporting or 

12 underpayments despite the absence of cancelled checks, 

13 original time sheets, or other similar documentation). 

14 (c) EFFECTIVE DATE.— 

15 (1) IN GENERAL.—Except as provided in para16 graph (2), the amendments made by subsection (a) 

17 shall take effect 12 months after the date of the en18 actment of this Act. 

19 (2) EXCEPTION.—If the Secretary of Labor 

20 finds that legislation is necessary in order for the 

21 unemployment compensation law of a State to com22 ply with the amendments made by subsection (a), 

23 such amendments shall not apply with respect to 

24 such law until the later of— 


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1 (A) the day after the close of the first reg2 ular session of the legislature of such State 

3 which begins after the date of the enactment of 

4 this Act; or 

5 (B) 12 months after the date of the enact6 ment of this Act. 

7 (d) DEFINITION OF STATE.—For purposes of this 

8 section, the term ‘‘State’’ has the meaning given such 

9 term by section 3306(j) of the Internal Revenue Code of 

10 1986. 

11 SEC. 5. DEPARTMENT OF LABOR COORDINATION, REFER12 RAL, AND REGULATIONS. 

13 (a) COORDINATION AND REFERRAL.—Notwith14 standing any other provision of law, any office, adminis15 tration, or division of the Department of Labor that, while 

16 in the performance of its official duties, obtains informa17 tion regarding the misclassification by a person subject to 

18 the provisions of the Fair Labor Standards Act of 1938 

19 (29 U.S.C. 201 et seq.), or any order issued under such 

20 Act of any individual regarding whether such individual 

21 is an employee or a non-employee engaged for the per22 formance of labor or services for purposes of section 6 or 

23 7 of such Act (29 U.S.C. 206, 207), or in records required 

24 under section 11(c) of such Act (29 U.S.C. 211(c)), shall 

25 report such information to the Wage and Hour Division 


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1 of the Department. The Wage and Hour Division may re2 port such information to the Internal Revenue Service as 

3 the Division considers appropriate. 

4 (b) REGULATIONS.—The Secretary of Labor shall 

5 promulgate regulations to carry out this Act and the 

6 amendments made by this Act. 

7 SEC. 6. TARGETED AUDITS. 

8 The audits of employers subject to the Fair Labor 

9 Standards Act of 1938 (29 U.S.C. 201 et seq.) that are 

10 conducted by the Wage and Hour Division of the Depart11 ment of Labor shall include certain industries with fre12 quent incidence of misclassifying employees as non-em13 ployees, as determined by the Secretary of Labor. 

Æ 


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