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Employers Save on Workers' Comp Costs by Misclassifying Employees

Posted on Feb 18, 2010

New York Times reporter, Steven Greenhouse, reports on a federal crackdown to enact stricter penalites to employers for misclassifying workers as independent contractors, rather than employees, to save on workers compensation premiums.

Many workplace experts are reporting an increase in the number of companies who are cutting costs by classifying regular employees as independent contractors, although they are giving them desks, phone lines and assignments just like regular employees. Companies who do this avoid paying Social Security, Medicare and unemployment insurance taxes for those workers. And, many of these misclassified workers are avoiding taxes as they are not reporting their full income. The touch economic conditions are likely the reason we are seeing an increase in companies labeling workers as independent contrators.

Employers deny misclassifying workers. Rather, they say the lines are unclear between employee and independent contractors. The major difference between the two - workers are categorized as employees when someone else controls how and when they perform their work, independent contractors are generally in business for themselves, and control their own work. Truck drivers, construction workers, home health aides and high-tech engineers are the positions which are most often misclassified.

The article quotes a contract worker, Fritz Elienberg as saying “I didn’t feel like an independent contractor. I didn’t feel like my own boss. I always believed I was an employee. It’s a win-win situation for them and a lose-lose for us. We didn’t get overtime, sick days, vacations, health insurance or pensions.” Mr. Ellenberg's suffered a work injury but workers' compensation did not cover his medical bills because he was considered an independent contractor.