How do companies cheat workers out of pay? Sometimes they don’t pay workers for legally mandated breaks. Sometimes they require workers to be on call without pay. Sometimes they refuse to pay overtime. Sometimes they pay less than the minimum wage, or refuse to pay tips that were earned. Sometimes they won’t pay separated workers their last paycheck. Sometimes companies go out of business and never pay the workers what they are owed, even if other creditors do get paid.
One form of wage theft deserves its own entry: the misclassification of employees as independent contractors. Millions of workers are affected, especially in industries such as construction, truck driving, real estate, home care, janitorial and high-tech jobs.
For millions of workers, the classification is a lie: They aren’t “independent” in any way. It’s just a way for the boss to steal part of their wages.
Classifying employees as independent contractors is attractive to employers because it saves them so much time and money. For instance, employers owe payroll taxes for every employee, but if workers are classified as independent contractors, the company doesn’t have to pay its share of Social Security and Medicare taxes or unemployment-insurance taxes. The Government Accountability Office figured in 2009 that misclassification cost the federal Treasury about $3 billion a year, because many independent contractors don’t pay the taxes they owe.
Companies avoid many legal responsibilities when they classify workers as contractors. Contractors don’t have the right to form unions or complain about working conditions. They can’t file for unemployment, or worker’s compensation. They aren’t covered by minimum-wage laws or overtime requirements, nor do they receive any benefits, such as family medical leave, paid vacation, sick days, retirement or health insurance.