Hiring Independent Contractors: New Laws for Virginia Employers
(Part Four of a Four-Part Series)
By Kristina Keech Spitler, Esq. and Brendan F. Cassidy, Esq.
Employers Must Report Independent Contractors to the Virginia New Hire Reporting Center
A new law requires Employers to submit independent contractor information to the Virginia New Hire Reporting Center in the same manner as employees if the independent contractor:
- Has not previously had a contract with an employer; or
- Previously entered into a contract with an employer and received payment pursuant to the agreement after receiving no payments for at least 60 consecutive days.
Employers are Liable if Misclassify Employees as Independent Contractors and Subject to Debarment from Public Contracting
(This new law is effective January 1, 2021.)
A new law prohibits an employer from misclassifying an individual as an independent contractor if s/he is an employee. Virginia Department of Taxation will determine the correct classification by applying Internal Revenue Service Guidelines. Any employer, or officer or agent of the employer that fails to properly classify an individual as an employee is subject to a civil penalty of up to $1,000 per misclassified individual for a first offense and up to $2,500 per misclassified individual for a second offense, and up to $5,000 per misclassified individual for a third or subsequent offense.
In addition to the penalties above, after an employer receives a second notice from the Department of Taxation that they misclassified an independent contractor, all public bodies and covered institutions will be prohibited from awarding a contract to that employer for up to one year. With a third or subsequent notice, all public bodies and covered institutions will be prohibited from awarding a contract to that employer for up to two years.
This law is significant for employers who have contracts with the state, local governments, and/or public institutions of higher education since they risk losing those contracts for independent contractor misclassification. In addition, an employer faces reputational damage when they receive their first notice of misclassification from the Department of Taxation, as the law provides that the Department will notify all public bodies and covered institutions of the employer’s first misclassification.
For further information or questions about these new laws, or for any questions regarding employment laws applicable to Virginia employers, please contact Ms. Spitler or Mr. Cassidy at Vanderpool, Frostick & Nishanian. The attorneys in the employment law department of VFN are available to help you revise your employee handbook and policies as well as provide training so that your organization complies with this new and other applicable law. Alternatively, if your organization does not have an employee handbook, our firm can draft a handbook tailored to meet your business’s needs.