• Advocacy, Community

Misclassification Crackdown in Tough Times

According to a new story from USA Today, authorities at both the state and federal level are taking a harder stance against companies that call their employees "independent contractors." Why the sudden attention to a longstanding issue in the workforce? It could be that freelancers are flooding the workforce as full-time jobs are harder to find, or it could be that misclassification is eating into federal revenue by a few billion dollars each year. Misclassification can be a two-way street, with bad consequences for both company and worker. The ways in which workers are classified has legal and economic repercussions for both the individual as well as the broader population. Employees not only have access to a range of employer-sponsored benefits like health insurance and retirement plans, but also a host of protections that the government mandates, including unemployment and workers’ compensation insurance, along with unpaid wage claims assistance. Employers also withhold taxes for their employees, while independent contractors or the self-employed must pay for both the employee and employer portions of federal taxes (15.3% instead of 7.65%) and often have no access to the aforementioned benefits and protections. However, the self-employed have different tax advantages, among them, tax deductions for health insurance premiums and different means of saving for retirement. Employees should receive Internal Revenue Service (IRS) form W2, while independent contractors should receive IRS form 1099. Various organizations and taskforces have largely focused on employees being wrongly classified as independent contractors. However, the opposite also occurs: independent contractors are wrongly classified as employees. In fact, our own 2009 survey of over 3,000 individuals found that up to 12% had been misclassified in the last year alone as employees, when they were in reality independent contractors. Only 9% said they were misclassified as independent contractors.