The deceptive and fraudulent practice of employee misclassification robs employees of hard-earned wages and benefits.
Beyond that, employee misclassification also robs states, governments, and local communities of taxes. Additionally, the bigger the company committing employee misclassification, the more likely they are in getting away with cheating employees out of legal wages.
Uber, a company worth $60 billion, was fined $649 million by New Jersey in November 2019 for years of employee misclassification practices.
New Jersey’s Department of Labor and Workforce Development issued the fine and determined that Uber misclassified its driver employees as independent contractors.
Additionally, the DLWD also determined that Uber hadn’t paid over $530 million in state disability and unemployment taxes between 2014 to 2018. New Jersey tacked on an additional interest fine of $119 million and is actively seeking back payroll taxes from Uber as well.
Uber probably saved anywhere from 20% to 30% on its labor and payroll costs by purposefully misclassifying employees.
However, employee misclassification is not just a regional problem. It’s a national problem that unfairly robs hard-working employees of their rightful wages.
How does employee misclassification affect wages? And what are some solutions to this problem?
Let’s start by defining employee misclassification.
What is Employee Misclassification?
Employee misclassification is the deceptive workplace practice of designating a worker as an employee instead of an independent contractor or vice-versa.
Employers are purposefully misinterpreting and/or blurring the distinction between “employee” and “independent contractor” when they misclassify employees.
An increase in independent contractors over the past few years has enabled employers to blur the line between employees and independent contractors.
There was a 40% increase in independent contractor positions between 2005 and 2015.
Employment misclassification issues vary state-to-state. Over 10% to 20% of businesses misclassify at least one employee according to the Economic Policy Institute.
A 2018 New Jersey employment study found that 1% of workers in the state (about 12,000 people) were misclassified as independent contractors. That misclassification resulted in over $462 million in unreported wages.
Big companies and corporations misclassify employees to save money on wages, get free labor, and effectively dodge taxes. The consequences of these deceptive practices affect workers most quantifiably.
According to a 2013 study by the Treasury Inspector General for Tax Administration, employers can shave as much as $3,710 off the salary of an employee making $43,007 annually.
Those savings can add up if an employer misclassified many employees.
Alphabet, the parent company of Google, has an estimated value of $1 trillion.
Google’s global, full-time workforce numbers about 102,000. However, critics allege that Google purposefully misclassified another 121,000 global employees as independent contractors for self-beneficial, financial purposes.
Consider how much wages those 121,000 Google employees are losing out on because they are misclassified as independent contractors.
So, is anything being done to address the problem?
Solutions for Employee Misclassification – And What You Can Do About It
When it comes to trillion-dollar corporations, it is hard to combat employee misclassification.
The most strident legal protections for employees against employee misclassification are occurring at the state level.
In January 2020, New Jersey ratified several new employment laws designed to counteract employee misclassification.
Businesses that misclassify an employee will pay $250 for a first violation and $1,000 for subsequent violations. Supervising employer officers, along with the owner, can also be held legally liable for employee misclassification.
If you or anyone you know were victimized by employment misclassification, there are a few things you can do.
Talk to Your Boss
Try to talk to your employer. Ask for clarification of your job position. Also, ask if you can get your job description status as an employee in writing.
Contact the IRS
You can contact the IRS and have them clarify whether or not you are an employee or independent contractor relative to your past tax return information. You can file Form SS-8 which designates you as an employee.
After filing Form SS-9, you can also file IRS Form 8919. Independent contractors must pay Medicare and Social Security taxes on their own. About half of such taxes are paid by employers if you are an employee.
Your uncollected Medicare and Social Security taxes will be transferred to your Social Security account after filing Form 8919. Also, filing this form will compel your employer to pay half of these taxes.
Be mindful that the IRS may inform your employer of your inquiries and requests.
File for Unemployment
If you suspect you have been misclassified as an employee and were then fired, file for unemployment insurance as soon as possible.
Inform your local unemployment insurance office that you suspect you are a misclassified employee. After a successful investigation, you may be entitled to retroactive insurance benefits.
Additionally, your former employer will be investigated and possibly fined.
Employee misclassification is a problem that probably won’t be solved completely.
The best way that you can deal with this issue is to know your rights as an employee.