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- Many workers are classified by employers as independent contractors, rather than employees.
- That might be costing them thousands, since employees receive overtime pay and benefits.
- The Biden administration has proposed a rule making it easier for gig workers to be counted as employees.
Misclassifying employees as gig workers can cost them thousands of dollars in lost pay and benefits, according to a new analysis from the left-leaning Economic Policy Institute (EPI).
EPI looked at 11 professions where workers are often misclassified as independent contractors — in essence, gig workers who work for themselves, rather than employees entitled to salaries with regular withholding and benefits. Misclassification, and title inflation, are some mechanisms that employers can use to maintain power over wages, benefits, and overtime.
Misclassification is a “persistent problem” across growing industries like trucking and delivery, according to a National Employment Law Project analysis. NELP finds that 10% to 30% of employers — and potentially more — misclassify workers as independent contractors, “which indicates that several million workers nationally may be misclassified.”
Now, with the Department of Labor eyeing a proposal to make it easier for gig workers to be classified as employees, EPI is highlighting the current cost of being an independent contractor. For instance, according to EPI’s calculations, construction workers being classified as independent contractors instead of employees costs between $10,177 and $16,729 per year.
The following table highlights just how much workers of the different occupations in EPI’s analysis lose out on because they’re misclassified as independent contractors:
“A typical home health aide loses out on $6,189 per year in income and job benefits as an independent contractor compared with what they would have earned as an employee,” a post on Twitter from EPI about the analysis said. Additionally, the authors estimate that a home health aide worker classified as an independent contractor can lose as much as $9,529 per year, according to the high estimate for this job.
This translates to a range of 19.8% to 30.5%. For construction workers, the range is 19.4% to 31.9%.
Truck drivers misclassified as independent contractors may lose between $11,076 and $18,053, according to EPI’s estimates. That roughly $18,000 figure translates to a loss of 34.1% and the highest figure in the above table.
Employees are entitled to the federal minimum wage, and, according to the Department of Labor, often overtime at the time and a half rate. Not being classified as an employee, then, can lead to lower incomes.
But workers don’t just lose out on pay. They also take a hit to their prospective benefits. As EPI notes, employees and employers both pay into Social Security and Medicare; however, independent contractors shoulder that burden on their own. Additionally, independent contractors have less access to other forms of social support, like unemployment insurance; one of the most notable pandemic-era unemployment expansions made gig workers newly eligible for UI between March 2020 and September 2021.
That all adds up, per EPI, and weighs on how much money social insurance programs get in turn. NELP finds that state and federal governments lose out on billions in revenue every year due to misclassification.
The Biden administration is taking aim at misclassification, hoping to crack down on it and offer an easier pathway for independent contractors to be considered employees.
“Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages,” Secretary Marty Walsh said in a press release on the DOL’s proposed rule on classification. “The Department of Labor remains committed to addressing the issue of misclassification.”