Friday, June 18, 2010


IWS Documented News Service
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor----------------------
Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau







June 17, 2010





Worker Misclassification: "Widespread and Harmful"

Highlighting a problem present in nearly every industry, Deputy Secretary of Labor Seth Harris recently testified before the Senate Committee on Health, Education, Labor and Pensions’ hearing on worker misclassification. The issue has become an increasingly common problem resulting in workers being denied benefits; an unfair advantage for employers who intentionally misclassify workers as independent contractors; and state and federal governments losing tax revenue. In his testimony, Harris outlined the scope of the problem, as well as DOL’s efforts to tackle the issue and it’s support of Congressional action to make misclassification illegal. “We believe that addressing this issue is a win-win for those who want to ensure a level playing field in the marketplace, and protect workers as Congress intended under the law,” Harris said.



Chairman Harkin, Senator Enzi, and members of the Committee.  Thank you for the opportunity to speak today about “worker misclassification.”


“Misclassification” seems to suggest a technical violation or a paperwork error.  But “worker misclassification” actually describes workers being illegally deprived of labor and employment law protections, as well as public benefits programs like unemployment insurance and workers’ compensation because such programs generally apply only to “employees” rather than workers in general.  Worker misclassification occurs when a worker who is legally an employee is treated as a self-employed worker, often referred to as an “independent contractor.”   Some misclassification is the result of uncertainty or misapplication of often complicated laws or situations.  However, much worker misclassification is intentional.  Misclassification as independent contractors also increases the opportunities for tax evasion, and some take advantage of those opportunities, with a resulting loss of Federal and state revenue.  Too many workers are being deprived of overtime premiums and minimum wages forced to pay taxes their employers are legally obligated to payand are left with no recourse if they are injured or discriminated against in the workplace.  Misclassification is no mere technical violation.  It is a serious threat to workers and the fair application of the laws Congress has enacted to assure workers have good, safe jobs.


In this difficult economic climate, millions of Americans are struggling to stay in the middle class.  We can see the impact of these struggles in many different areas of the economy:  workers trying to keep good jobs with good wages and benefits; small businesses struggling to compete in a difficult market; and state governments and the United States government working to fund budgets that can provide the essential services Americans need.  Worker misclassification exacerbates all of these challenges.  It 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.  And the revenues flowing into federal and state treasuries are diminished when employers that 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.


Most workers in this country simply assume they are protected by our nation’s basic employment laws – minimum wage, overtime, health and safety, workers’ compensation, anti-discrimination, and unemployment insurance, among others.  What they may not realize is that these protections are directly linked to their status as “employees.”  For example, independent contractors, a label given to individuals who are genuinely self-employed, are not “employees” and, therefore, are not protected by these laws.


Unfortunately, it is all too easy for employers to misclassify employees and get away with it. Misclassification alone does not violate the Fair Labor Standards Act (FLSA), the Occupational Safety and Health Act (OSH Act), the Mine Safety and Health Act (Mine Act), or most other statutes administered by the Labor Department.  No penalty attaches under these laws when employers misclassify workers, even when the employer knows and ignores a worker’s true legal status.  Furthermore, employers are not obligated to perform a written classification analysis before unilaterally deciding to treat workers as though unprotected by employment laws.  For these reasons and others, it can be difficult for the Labor Department’s worker protection agencies to protect workers and for workers to protect themselves under our existing laws.  There are, however, severe Federal tax penalties for employers who are discovered to have misclassified workers, and such employers may also be required to pay their unpaid unemployment insurance premiums.


The Labor Department’s experience has shown that misclassification can be a tool for employers to evade their legal obligations to workers and thereby gain a competitive advantage over employers that obey the law.  While some employers misclassify their workers in error, the Government Accountability Office (GAO) concluded that some employers choose to misclassify their employees in order to avoid laws that restrict their labor practices or require them to provide rights and benefits to employees.   These are the cases we are targeting.




This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
Telephone: (607) 255-2703                
Fax: (607) 255-9641                       



<< Home

This page is powered by Blogger. Isn't yours?