The type of misclassification addressed in this report occurs 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%-to-30% of employers misclassify their Workers.

The way a Worker is classified has serious implications for their labor rights and 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 stripped of minimum wage and overtime protections; These misclassified Workers are no longer eligible for Unemployment Insurance or Workers’ Compensation; They do not qualify for paid sick or family leave, even in places where those benefits are statutorily prescribed for Employees and they are extremely unlikely to 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 are not covered by anti-discrimination and sexual harassment protections; and 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.

Losing these benefits and 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 in part because its costs to individual Workers can be 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. 

This report presents estimates of two types of costs caused by misclassification for 11 commonly misclassified occupations: What Workers lose when they are misclassified - that is, 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 What social insurance funds lose when Workers are misclassified - that is, the difference in payments to social insurance funds if a Worker is classified as an Independent Contractor rather than as an Employee.

To Continue Reading This Labor News Report, Go To: Misclassifying workers as independent contractors is costly for workers and social insurance systems | Economic Policy Institute