Misclassification of employees occurs when a business calls some workers independent contractors but treats them as employees. This may be an honest misunderstanding, or it may be an attempt by businesses to save money at workers’ expense.
Employees can suffer as a result of misclassification as independent contractors. However, businesses can also suffer because of misclassification.
How misclassification hurts workers
Employees are eligible for many benefits that independent contractors are not, including unemployment insurance coverage, workers’ compensation, medical leave, overtime pay and minimum wage. A worker misclassified as an independent contractor typically does not receive these benefits even though the law entitles employees to them.
The misclassification could cost the worker money. For example, a misclassified employee who sustains a work-related injury may spend a lot of money on medical expenses that the law says that the employer should cover.
How misclassification hurts businesses
According to the United States Department of Labor, businesses that do not engage in misclassification may suffer because of competitors that do. Because competitors that engage in misclassification are not paying obligations such as payroll taxes, workers’ compensation insurance premiums and may not even be paying a minimum wage, they may be saving money illegally, which they can then use to lower costs.
Businesses that do engage in misclassification can get in trouble as well. Misclassification is illegal and could incur fines and other penalties.
The law defines who is an employee and who is an independent contractor. Employers do not have the ability to override this definition and classify workers however they want.
