Misclassifying workers as contractors is enormous problem, stress experts

More businesses are relying on independent workers as regular employees but treat them as contractors by not providing such benefits as overtime, worker's compensation or health insurance. Such misclassification of independent contractors creates expensive social and legal problems for the government, taxpayers and workers themselves, said experts Nov. 18 in the ILR Conference Center in New York City.

Although employers are being held accountable more often, misclassification enforcement is challenged by the rapidly growing numbers of workers in this category – perhaps one in 10 of all workers.

At the event, "Employee Misclassification: An Enforcement Update," ILR Labor and Employment Law Program Director Esta R. Bigler '70 said that the issue encompasses workers in many professions and industries.

Lost revenues to Social Security, the Internal Revenue Service and other agencies help motivate government entities to work together, said Solicitor of Labor M. Patricia Smith. The U.S. federal government has lagged behind states in enforcing misclassification, but President Barack Obama has devoted $25 million to it in his proposed federal budget, said Smith.

Expect to see more information sharing between federal agencies such as the IRS and the Department of Labor, said Smith, who added, "I would not be surprised to see misclassification legislation passed in this Congress."

Attorney Laurie Berke-Weiss '71 called employee misclassification "a minefield." She continued, "The mere fact that you have an agreement" between a worker and an employer does not protect either one.

Most cases are decided by such issues as who controls the worker, the permanence of the work relationship and whether the work is integral to the employer's business, Berke-Weiss said. Conflicts in misclassification case law also blur the line between risks and rewards for employers considering a contract with an independent worker, she said.

"The Cost of Misclassification in New York State," published by Cornell's ILR School in 2007, details the billions lost through uncollected Social Security, unemployment and income taxes. Although misclassification occurs most egregiously in the underground economy, it is also a problem in some legitimate business, such as construction, speakers said.

Pamela Tolbert, ILR's Lois S. Gray Professor of Industrial Relations and the Social Sciences, said that use of independent contractors might not be intended as a disciplinary measure, but her research shows that regular workers often perceive it that way and fear their jobs are in jeopardy. About one in 10 workers in today's work force is temporary, an increase of about 1,000 percent in the past four decades, Tolbert said.

Jennifer S. Brand, executive director of the New York State Joint Enforcement Task Force on Employee Misclassification, said that the task force -- working with state and local agencies -- has identified nearly $500 million in unreported wages since 2008.

The New York State Construction Industry Fair Play Act, enacting new classification standards and penalties for employers who do not follow them, went into effect in October.

"Our biggest challenge is to make sure the change we've seen continues," Brand said, noting that 19 other states have started similar task forces.

Misclassification can be blatant or subtle, she said, and is sometimes identified by door-to-door business district "sweeps" conducted by the task force.

Mary Catt is the ILR School's staff writer.

 

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