“The misclassification of employees as something other than employees, such as independent contractors, presents a serious problem for affected employees, employers, and to the entire economy,” according to the DOL. “Misclassified employees are often denied access to critical benefits and protections – such as family and medical leave, overtime, minimum wage and unemployment insurance – to which they are entitled. Employee misclassification also generates substantial losses to the Treasury and the Social Security and Medicare funds, as well as to state unemployment insurance and workers compensation funds.”
The use of contract companies has not exempted the users from scrutiny – and in some case, legal action -- in a number of worker safety cases. Target is the target of complaints filed with OSHA over workers who were employed by a third party being locked in overnight while cleaning Target stores in Minneapolist.
Workplace safety and health hazards have been an ongoing concern among California’s warehouse workers, who move products that are sold at Target, WalMart and Footlocker. Those retailers, however, are shielded from legal exposure by layers of intermediary companies.
In the DOL study, more than 10,000 workers and 20 executives will be interviewed to determine how much workers understand about their own job classification and their related rights and benefits. The Labor Department defines a misclassification as the practice, intended or unintended, of improperly treating a worker who is an employee as something other than an employee, such as an independent contractor.
In September 2011, Secretary of Labor Hilda L. Solis signed a Memorandum of Understanding (MOU) between the Department and the Internal Revenue Service (IRS). Under this agreement, the agencies will work together and share information to reduce the incidence of misclassification of employees, to help reduce the tax gap, and to improve compliance with federal labor laws.
The U.S. Government Accountability Office estimates more than $2.7 billion in Social Security, unemployment insurance and income tax is lost per year due to misclassification of workers.
According to one estimate cited by the Labor Department, for every 1 percent of employees who are misclassified, $200 million is lost annually in unemployment insurance revenue.
The DOL set a March 12 deadline for comments on the planned study.