What is Misclassification of Workers | by Jeremiah Flowers

Misclassification is when an employer wrongly classifies an employee as an independent contractor. The problem of workers being misclassified as independent contractors is pervasive and widespread. An analysis from the National Employment Law Project focusing on state-level reports on misclassification estimated that as many as 10–30% of employers misclassify their workers. An earlier study commissioned by the Department of Labor in 2000 found 10–30% of employers misclassified at least some workers.

The way a worker is classified has serious implications for their labor rights and costs to their economic security. Federal, state, and local labor laws provide extensive protections for employees that are not available to independent contractors, for example:

* When a worker is misclassified as an independent contractor, they are no longer eligible to earn minimum wage or overtime pay.

* These misclassified workers are no longer eligible to participate in unemployment insurance systems or to qualify for workers' compensation insurance.

* They do not qualify for paid sick or family leave in places where those benefits are statutorily prescribed and they do not receive employer-provided health insurance or retirement benefits.

* They are no longer protected by the National Labor Relations Act, which ensures workers' rights to form unions and bargain collectively to improve their working conditions.

* In most states, misclassified workers no longer receive federal anti-discrimination and sexual harassment protections.

*Workers misclassified as independent contractors also must assume the full financial cost of Social Security and Medicare contributions, rather than split it evenly with their employer when classified as employees.

Losing these protections leaves independent contractors in a far more vulnerable position than employees when it comes to their basic rights on the job.

Employers have argued that many workers prefer being classified as independent contractors because they value "flexibility" over fundamental labor rights. But this so-called flexibility is often illusory, given the degree of control many employers retain over workers and their schedules. Misclassification remains pervasive because the costs to individual workers are hard to quantify and thus easy to obscure. Prior research has estimated the costs of misclassification by quantifying the number of workers misclassified; the amount of wage theft experienced by misclassified workers; and the loss in federal and state tax revenues resulting from employers not paying payroll taxes and workers' compensation insurance. There are two types of costs caused by misclassification for 11 commonly misclassified occupations:

* the difference in the value of a job to a worker if the worker is classified as an independent contractor rather than as an employee, and

* the difference in payments to social insurance funds if a worker is classified as an independent contractor rather than as an employee.