In recent news, the IRS, Department of Labor (DOL), and state governments are now cooperating to reduce the misclassification of workers. Misclassifying workers is a rampant problem: the Government Accountability Agency reports that it costs the IRS billions of dollars, and a study by the Department of Labor estimates that approximately 30% of employers incorrectly classify their workers.
The classification of workers into “employees” and “independent contractors” may seem like a minor detail, but it has significant implications for workers’ compensation, benefits, taxes, unemployment insurance, and labor laws.
An “employee” works throughout the year. An independent contractor, on the other hand, works only temporarily and is paid per job. Independent contractors, unlike employees, are not eligible for benefits and are not covered under workers’ compensation. Companies often hire and classify workers as independent contractors because they are cheaper—requiring no benefits. These companies also often misclassify their workers, which can lead to worker status disputes and large penalties imposed by the IRS.
The Department of Labor is expected to issue a number of regulations on worker classification. These regulations will require businesses to “write a classification analysis for all workers, including independent contractors.” And the “proposed regulations are expected to require companies to explain why the workers is or is not covered by the Fair Labor Standards Act,” which establishes minimum wage, overtime, hours worked, recordkeeping, and child labor. The “Right to Know” aspect of the DOL regulations would mandate that independent contractors receive from the company a notification of the individual’s tax obligations, that employment law protections that do and do not cover them, and their right to ask the IRS what their worker status is.
Independent contractors should take care to understand their worker status. If injured on the job, consult with an attorney about whether or not you can file for workers’ compensation Many times, the workers’ compensation attorneys at Lee, Gurney & Hess have found that individuals who thought they were independent contractors were misclassified and were actually employees with the right to seek benefits under the Kansas Workers Compensation Act.