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Misclassification: Treating Workers as Independent Contractors

This McClatchyDC special report ("Contract to Cheat") is the result of a year of investigative reporting in seven states, including California, in an effort to uncover the widespread practice of classifying workers as independent contractors when they probably should be classified as employees.

It's a classic case of injustice in the workplace.

Why would employers classify workers as independent contractors?

Oftentimes, classifying a worker as an independent contractor is perfectly reasonable and legitimate. It is a firmly established business practice. But classifying workers as independent contractors to avoid withholding payroll taxes and to avoid providing traditional employee benefits, as the McClatchyDC report indicates, is a whole other ballgame.

What is an independent contractor?

The Internal Revenue Service (IRS) generally defines independent contractors as self-employed individuals or businesses in which the type of work and how the work is performed is not controlled by the other party. The "employer," to use that term loosely, has "the right to control or direct only the result of the work [...]"

Worthy of note is this: "If an employer-employee relationship exists (regardless of what the relationship is called)," according to the IRS, "you are not an independent contractor [...]"

What is misclassification?

Misclassification is a legal term that describes an employer who has wrongly classified a worker (or group of workers in similar job roles) as an independent contractor.

An employer is not obligated to provide independent contractors with unemployment benefits if the worker is fired through no fault of their own or provide workers' compensation if the worker is injured on the job (thereby saving money). The employer also is not obligated to withhold payroll taxes for independent contractors, who must manage their own self-employment tax. This also saves employers money.

Just as troubling, perhaps, is independent contractors in many states are not covered by the same minimum wage and overtime laws that protect properly classified employees.

Are California's construction workers misclassified?

The McClatchyDC report says that millions of construction workers "hang drywall, lay carpet, shingle roofs," yet do not possess the benefits and protections of the traditional employer-employee relationship because they are classified as independent contractors - and wrongly so.

It's entirely possible that many of these workers are misclassified.

Bonhia Lee's Fresno Bee report ("California tax cheats difficult to find") describes a situation in which misclassification appears to run rampant, yet the evidence of this isn't easy to find, based on an examination of employer-provided payroll records and related documentation.

As Lee reports: "Cheating employers are smart [...]. They avoid detection by misidentifying employee trades to pay lower rates and shaving off work hours to avoid paying workers their full week's pay."

Problem not limited to misclassification

As just one example of the problem, Lee's report described a situation in which an employer listed workers as laborers instead of ironworkers.

The result was roughly $17 per hour in unpaid wages on the Fresno Housing Authority Projects for these workers.

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