During its 2016 legislative session, the Maryland General Assembly enacted new penalties for employers who fail to classify a worker who is an employee as an employee for purposes of unemployment insurance. The new law became effective October 1, 2016.
If the Maryland Department of Labor, Licensing and Regulation (DLLR) determines that an employer has failed to classify an employee as an employee, it will issue an assessment to the employer for delinquent unemployment contribution payments. An employer that fails to pay the assessment within 45 days will be assessed interest at 2% per month beginning with the first due date following notice.
Further, if DLLR determines that an employer “knowingly” failed to classify an employee as an employee, the employer will also be subject to a civil penalty of not more than $5,000 per employee. “Knowingly” is defined as “having actual knowledge, deliberate ignorance, or reckless disregard for the truth.” Employers found to have knowingly violated the law on more than one occasion may be assessed a double penalty – that is, up to $10,000 per employee.
The law also provides for a civil penalty of up to $20,000 to be imposed against a person, such as a lawyer, accountant, consultant or other individual or entity, that knowingly advises an employer “to take action for the purpose of violating” the classification law.
Only time will tell how aggressively DLLR will use this new enforcement tool against employers (and their advisors). However, the law has the potential to create significant liability for employers that utilize independent contractors as a part of their workforce. Accordingly, employers should review whether their independent contractors are properly classified. (For example, independent contractors generally set their own hours, bring their own tools, work for multiple parties, etc.)
Charles R. Bacharach
410-576-4169 • firstname.lastname@example.org