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