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An Employee by Any Other Name: The Thorny Side of Misclassification
Department of Labor statistics show that 30 percent of businesses have misclassified employees as independent contractors, thus shirking the need to pay into workers' compensation funds.

The Hill’s Congress Blog reports that there were an estimated 10 million misclassified workers in 2006, according to the Governmental Accountability Office. In a recent statement, Senator Tom Harkin cites Department of Labor statistics estimating that 30 percent of businesses misclassified employees as independent contractors. “That means the construction worker who falls and breaks his leg is denied workers’ compensation, and the truck driver who works 60 hours a week doesn’t receive the overtime pay his family deserves to help cover the rising costs of food and energy,” says Harkin.

Employee Misclassification and the IRS

According to the IRS, determination of employee or independent contractor status requires examination of the degree of control and independence the worker is granted, with special consideration given to behavioral or financial control exerted by the hiring entity and the general type of relationship between the parties. The hiring party’s classification is not definitive; for example, a trucking company may classify workers as independent contractors. However, if the company trains its drivers, owns the trucks or otherwise controls the way in which drivers complete their runs, the drivers may actually be employees, notwithstanding the employer’s attempted classification.

Effects of Employee Misclassification

Misclassifying employees as independent contractors strips employees of their rights and protections, including labor protections such as minimum wage guarantees and overtime protection. Employers misclassify employees to avoid costs associated with employees, such as Social Security and Medicare payments, vacation, sick leave, pensions and, importantly, avoidance of workers compensation costs. For example, a construction employer may attempt to classify roofers as independent contractors in order to avoid paying workers compensation premiums and to escape liability for workplace injury or disability claims in the event an employee were to fall and get hurt.

Additionally, misclassification hurts honest employers. A representative of the Mason Contractors Association of America estimates that companies that misclassify their employees may reduce labor costs up to 30 percent. This allows dishonest employers an unfair advantage when bidding for jobs.

Senator Sherrod Brown has introduced the Employee Misclassification Prevention Act to prevent employer misconduct. In the meantime, truckers, roofers or other workers who have been injured in the course of their work should contact an experienced workers compensation attorney. Although companies may have treated these workers as independent contractors, under other interpretations, they may actually be considered full time employees, eligible for workers compensation benefits. An experienced attorney can advise them of their rights and protect their interests in the administrative process if they are eligible to file work comp claims.

Keywords: independent contractor, employee misclassification, minimum wage, overtime,
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