News today on the misclassification of construction employees and recent court decisions in Oregon and California that FedEx’s employees are not independent contractors are reminders that misclassification of workers is rampant in this country and that misclassification hurts workers, honest companies, and government at every level.
“Companies have put more and more risk, responsibility, and cost on their employees—requiring employees to pay their own employment taxes, to do without worker’s comp coverage, to pay for their own uniforms, and to rent the tools they need to work,” said EPI’s Vice President Ross Eisenbrey, who has studied misclassification since the 1990’s. “Misclassification robs workers of fair pay and benefits, and contributes to an economy where wages are flat, profits are soaring, and CEOs and top brass get the lion’s share of pay increases. Meanwhile, the companies that do not arrange their business to avoid their employment responsibilities are disadvantaged. It’s not just bad labor practices, it is unfair competition.”
Misclassification occurs when employers treat employees as independent contractors, which allows them to avoid paying workers compensation premiums, unemployment insurance and FICA taxes, minimum wage and overtime pay, and a host of other employment-related obligations.
“Income inequality is rising because an enormous and ever-increasing share of income growth goes to corporate profits and executive pay,” said Eisenbrey. “This is a solvable problem. It can be traced in no small part to policies like misclassification that have undermined labor standards and ideas of fairness to reward lawless employers at the expense of workers.”
EPI is studying misclassification as part of its Raising America’s Pay initiative, which highlights the problem of stagnant wages and proposes solutions to jumpstart wage growth. Research on misclassification can be found on EPI.org.