What Is an Employee Misclassification?

Independent contracting—which in many cases is inappropriate employee misclassification—has become more intricately woven into the fabric of modern work life over the last decade, according to the author of a July 2017 Harvard Business Review article. An estimate indicates contract work has grown from approximately seven percent to ten percent in that amount of time.

Employee misclassification involves incorrectly identifying a worker as essentially having his own business separate from that of the employer. As indicated by the IRS website, there is a general rule of thumb that helps determine the correct status with regard to a working relationship: a person is more likely an independent contractor if the person who pays for services has the right to control and direct only the end result of the effort and not what, how, and when it will be done—barring a contractual deadline.

How Does Employee Misclassification Hurt the Worker?

The IRS says an independent contractor has to pay the whole of federal taxes, like Social Security and Medicare, as well as state payroll taxes.

Contractors contribute both the employer and employee portions which for social security and Medicare amount to 15.3 percent. As a point of comparison, the correctly classified employee pays only the worker contribution which is 7.65 percent. Misclassification hurts the bottom line of the worker’s paycheck and can be a modern method of passing off employer costs to the labor pool. California has implemented stronger laws to combat this.

The incorrectly classified independent contractor lacks the safety net of other fully employed workers. They cannot access worker’s compensation, unemployment insurance, or fall under the protection of the Occupational Safety and Health Act (OSHA). Contractors’ ability to be represented by any kind of labor organizing agency under the National Labor Relations Act is compromised.

How Does Misclassification in the Workplace Affect Society Negatively?

As common as the use of misclassification has become, it is likely been adopted as a business strategy by some companies to lower labor costs. When this is done, according to Harvard Business Review, it gives the company a competitive edge over those that strive to be compliant with all labor guidelines imposed by the law.

The long range effect of this is to lose businesses which seek to be good employers to the force of the marketplace. Society loses with less choices available. Secondly, contributions to social security, Medicare, and other social safety nets contract, reducing funds available for those citizens in need.

What Are Other Notable Markers of a Correctly Classified Independent Contractor?

According to The Balance Careers.com, a correctly classified independent contractor is a “full professional” that provides their own work space in the form of a rented or home office, advertises or networks to find and locate clients, requires and obtains contracts for services from each client—and likely has several clients concurrently, bills clients for completed services or requires a partial deposit until services are completed, and is capable of hiring additional workers to help complete tasks undertaken by said contracts.

Examples of true independent contractors are lawyers, doctors, freelance writers, and electricians.

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Even if you are classified as an independent contractor, you may be entitled to minimum wage, overtime pay, reimbursement for expenses, and meal and rest breaks, among other employee benefits.

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This article is not legal advice. It is presented 
for informational purposes only.