The Internal Revenue Service (IRS) estimates that American employers intentionally misclassify millions of workers as independent contractors to reduce labor costs and avoid paying state and federal taxes.
Employee misclassification allows large corporations can save on the bottom line, but at the expense of workers. Misclassified employees lose workplace protections, including the right to join a union, face an increased tax burden, receive no overtime pay, and are often ineligible for unemployment insurance and disability compensation.
According to a 2012 study by the National Employment Law Project, there were an estimated 368,685 misclassified workers in Illinois, 704,785 in New York, and up to 459,000 in Ohio.
Joe Lyon is a highly-rated lawyer representing plaintiffs nationwide in a wide variety of labor disputes and employee misclassification lawsuits.
Employee Misclassification Lawsuits
An independent contractor provides a good or service to another individual or business, often under the terms of a contract that dictates the work outcome, but the contractor retains control over how they provide the good or service.
The independent contractor is not subject to the employer’s control or guidance except as designated in a mutually binding agreement. Essentially, independent contractors treat their employers more like customers or clients, often have multiple clients, and are self-employed.
A worker’s status is generally determined by whether the individual is economically dependent on the business he or she is working for, or is actually in a business for themselves. Some basic questions can be asked to make a determination as an employment status:
• Does the company control what a worker does or how a worker performs duties?
• Are financial aspects of the work, such method of payment and reimbursement of expenses, controlled by the worker or the company?
• Is there a written contract?
• Does the worker receive employee-type benefits, such as a pension plan, insurance, or vacation pay?
Why Do Employers Misclassify Workers?
There are several reasons an employer might consider misclassifying workers, the most pertinent of which are outlined below:
• Misclassifying employees as independent contractors can free employers from providing a minimum wage, and abiding by hour laws.
• Tax savings: Employers are not required to pay Social Security and unemployment insurance (UI) taxes for independent contractors. These tax savings, as well as savings from income and Medicare taxes can save employers between 20 to 40 percent on labor costs.
• Employers may avoid laws enforced by the Equal Employment Opportunity Commission (EEOC).
• Employers can avoid union organization. Independent contractors are not covered by the National Labor Relations Act.
• Employers save money on company provided benefits as independent contractors are usually not permitted to enroll in employer-based health and pension plans.
• Employers may avoid having to verify that workers are U.S. citizens or covered by a work visa, and exploit low-wage immigrant workers with few legal repercussions.
