National Consumers League

Worker Rights

Worker Rights

Wage Theft: Employee misclassification

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How are you being classified? Being listed as an employee versus an independent contractor can make a huge difference in the wages you are entitled to.


 

 

 

What is Employee Misclassification?

According to the US Department of Labor’s Deputy Secretary Seth D. Harris, in his testimony to the US Senate Committee on Health, Education, Labor and Pensions on June 17, 2011, employee misclassification “occurs when a worker who is legally an employee is treated as a self-employed worker, often referred to as an ‘independent contractor’.

 

Employee or Independent Contractor?

  • The extent to which the services rendered are an integral part of the      employer’s business
  • The permanency of the relationship
  • The amount of the worker’s investment in facilities and equipment
  • The nature and degree of control by the employer
  • The worker’s opportunities for profit and loss
  • The amount of initiative, judgment, or foresight in open market competition with others required for the worker’s success
  • The degree of the worker’s independent business organization and operation

 

Employee label vs Independent Contractor label

Differences in the labels…

Employee Label

Independent Contractor Label

Tax Forms

W-2

1099

Workers Compensation

Yes

No

Unemployment Insurance

Yes

No

Overtime

Yes

No

Minimum Wage

Yes

No

Health & Safety Protection

Yes

No

Anti-Discrimination Protection

Yes

No

Payroll Tax

Employer pays

Independent Contractor pays

 

What’s at stake?

 

  • Shortchanges workers, employers, states and the federal government
  • Workers are not paid the wages to which they are entitled
  • Law-abiding, responsible employers are denied a level playing field in a hyper-competitive business environment
  • Revenues flowing into federal and state treasuries are diminished when employers should be treating workers as employees avoid paying: unemployment taxes, workers’ compensation premiums, and (unless the workers pay them) payroll taxes
  • When the misclassified workers themselves do not pay some or all of the employment taxes for self-employed workers, the Social Security trust funds suffer a permanent loss.

 

For more information regarding employee misclassification please contact the U.S. Department of Labor Wage and Hour Division at www.wagehour.dol.gov and/or call the toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866- 4USWAGE (1-866-487-9243).

Source – Deputy Secretary of Labor’s, Seth D. Harris’s, testimony to US Senate Committee on Health, Education, Labor and Pensions on June 17, 2011 http://www.dol.gov/_sec/media/congress/20100617_Harris.htm

 

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