Hundreds of thousands of full-time workers are misclassified as independent contractors, depriving them of labor protections, overtime pay, Social Security and unemployment insurance, among other lost benefits.
It’s particularly prevalent in the construction industry, as Muskegon, Mich., Local 275 Sean Egan learned early in his career.
In a post to the Kent-Ionia Central Labor Council’s website, Egan recounts a job held when he first got out of the U.S. Navy 20 years ago.
I worked with a small house painting company for about a year. Not knowing anything about the law at that time other than minimum wage, it was perfectly common to receive a 1099 instead of actual wages. I didn’t provide any tools, didn’t bid jobs, and didn’t find my own home to paint. I showed up when I was told, used company tools and supplies, performed the tasks I was instructed to perform, and was paid an hourly rate for work but in the form of 1099 wages. Certainly this isn’t the complete economics reality test, but looking back a 1099 was not appropriate. I was not self-employed. The 1099 allowed the employer to avoid workers’ compensation, unemployment insurance, and other taxes.
Egan serves as president of the council.
Worker misclassification not only cheats workers out of hard-earned benefits and wages, it hurts taxpayers as well.
A study of payroll fraud in Oregon for example, found that for every $100 saved in payroll costs, “employers who misclassify employees save nearly $5 in state unemployment insurance, workers’ compensation insurance premiums and transit taxes.”
It also costs the federal government millions in lost revenue as well.
This has been an increased push to crackdown on the practice from lawmakers throughout the United States, including the Labor Department, which recently issued new guidelines aimed at curtailing the practice.
Click here to read the DOL’s guidelines.