Worker misclassification is the practice of treating a worker who is an employee under the law as something other than an employee, thus depriving the employee of rights and benefits to which they are entitled, a practice called "widespread and harmful" by the Department of Labor.
"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" according to Seth D Harris, Deputy Secretary of the DOL.
The results of such misclassification include:
• It is estimated that up to 30% of businesses across all industries misclassify workers.
• 10.3 million workers are classified as independent contractors (7.3% of workforce).
• When an employee is misclassified as an independent contractor it is estimated that they reduce their labor costs by 20-40%.
• Federal & state coffers suffer as billions of dollars in unpaid revenues go un-captured.
• Law-abiding employers are also hurt by businesses that do not properly classify.
To address the problem, there is a newly proposed piece of legislation called the “Employee Misclassification Prevention Act”. There is not consensus on this direction, as there may be negative consequences associated with the additional administrative responsibilities and associated costs.
For more details:
• Senate Committee Holds Hearing on Worker Misclassification
• Watch the Full Committee Hearing — “Leveling the Playing Field: Protecting Workers and Businesses affected by Misclassification” (Video)
• Employee Misclassification Prevention Act (H.R. 5107, S. 3254)
• Statement of Seth D Harris, Deputy Secretary U.S. Department of Labor, Before the Committee on Health Education, Labor, and Pensions U.S. Senate. - June 17, 2010
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