The U.S. Department of Labor wants to know just how much the average worker understands about the job classification system and his or her rights under that system. Unfortunately, according to the Labor Department, it is fairly common for employees' rights to be violated through the misclassification of workers as independent contractors versus employees.
Workers aren't contractors just because the company they work for says they are. The Fair Labor Standards Act is in part intended to provide standards for what legitimately counts as contract work, based on a number of factors. This is because contract workers have fewer rights and legal protections than employees do.
For one thing, companies who hire independent contractors instead of employees can "achieve significant administrative and labor cost reductions" because they don't have to pay Social Security taxes, payroll taxes or unemployment insurance for independent contractors.
The fact that unscrupulous companies far too often take advantage of those cost savings by wrongly classifying their workers as independent contractors instead of employees has become a significant problem. According to an estimate by the U.S. Government Accountability Office, it costs the government an estimated $2.7 billion a year in unpaid taxes and unemployment insurance costs. It probably also contributes to the underfunding of workers' comp insurance funds, and it inhibits unionization. In 2011, the agency and the IRS started a joint enforcement crackdown on the practice.
These issues prompted the Labor Department to plan a $19 million study to find out how much workers understand about their rights under the FLSA. The agency plans to interview more than 10,000 workers and 120 executives on the issue.
"It's a crackdown on something that, if done intentionally and knowingly without any conscience, is wrong," one attorney who represents employers told Reuters. "Most businesses are confused by what the test is to be an independent contractor," however, he added.
That is very likely true, but ultimately it isn't the issue. The issue is that employees have rights, benefits and a safety net, while contractors do not. Intentional or not, employee misclassification places a large number of people outside the protection of the law.
So, if you are told you're an independent contractor, do you know what your rights are?
Source: Thomson Reuters News & Insight, "Labor Department to study worker misclassification," Brendan O'Brien, Jan. 22, 2013