Wage Theft: Employee misclassification – National Consumers League
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 https://www.govinfo.gov/content/pkg/CHRG-111shrg49715/html/CHRG-111shrg49715.htm