by Scott Braddock on Wed, 12/28/2016 – 9:17am
Heading into the new year, the federal government is ramping up efforts to educate employees and employers about the harms caused by worker misclassification. It’s a problem we’ve documented extensively over the years on Construction Citizen.
Our readers know very well that worker misclassification happens when a business pretends its employees are “independent subcontractors” with the intent of avoiding payroll taxes and benefits like workers’ compensation insurance and – thanks to reduced labor costs – are able to submit lower bids for projects, undercutting law-abiding companies. Of course, there are many legitimate and legal uses of contract labor. The problem arises when businesses abuse the designation with the intent of skipping out on taxes and providing benefits for people being utilized as employees.
The Department of Labor this month launched a new webpage devoted to the topic. The site makes the case that worker misclassification negatively impacts everyone: Workers, employers, and all taxpayers who have to pick up the slack when unscrupulous employers shirk their responsibilities.
The site outlines various things misclassified workers miss out on like “minimum wage and overtime pay, protections from anti-discrimination and anti-retaliation laws, workers’ compensation if injured on the job, unemployment insurance, health and safety protections on the job, and employer-sponsored benefits.”
The Labor Department site also points out that even though there are some state efforts to crack down on the practice, it is already illegal.
“Businesses found to have misclassified their workers expose themselves to fines and liability for unpaid wages and unpaid taxes,” the page says. “Competitor businesses who misclassify gain an unfair advantage by unlawfully lowering their personnel costs (for example, by not paying all wages, providing benefits, or providing necessary safety equipment when they should).”
Meantime, “Governments lose revenue, which in turn hurts taxpayers and undermines the economy.”
The page also includes links to news releases, an administrator’s interpretation of the issue, a video explaining misclassification and other resources from the Wage and Hour Division of the department. You’ll also find industry-specific guidance, since misclassification is not solely a problem in construction, and whistleblower protections from the department’s Occupational Safety and Health Administration.
The Internal Revenue Service publication that describes that agency’s worker classification criteria for tax purposes is included on the site as well. It also highlights agreements the Labor Department has made with 35 states to collaborate on investigating worker status violations.