As a proposed Department of Labor rule aims to combat employer misclassification of workers as independent contractors, a new EPI analysis of 11 commonly misclassified jobs estimates the cost of independent contractor status to these workers. When employers misclassify workers as “independent contractors” instead of as “employees,” they are imposing significant economic costs and depriving them of fundamental labor rights like wage and hour protections.
A typical construction worker, as an independent contractor, would lose out on as much as $16,729 per year in income and job benefits compared with what they would have earned as an employee. A typical home health aide, as an independent contractor, would lose out on as much as $9,529 per year in income and job benefits compared with what they would have earned as an employee, according to the analysis.
Landscapers, truck drivers, janitors, and nail salon workers are also among the occupations most at risk of misclassification, and many of these occupations already have relatively low median annual earnings. While misclassification can happen to any worker, because of occupational segregation and other labor market disparities, people of color and immigrant workers are more likely to be in occupations where misclassification is common.
When workers who are employees are misclassified as independent contractors, they lose the legal right to earn at least the applicable minimum wage and to be paid time-and-a-half for overtime hours. They are no longer eligible to participate in state and federal unemployment insurance systems or qualify for workers’ compensation insurance covering treatment and benefits if they are injured on the job. They are no longer eligible for the protections in the National Labor Relations Act, which ensures workers’ rights to form unions and bargain collectively to improve their working conditions.
“Employer misclassification of workers as independent contractors robs workers of labor rights and threatens their economic security,” said Heidi Shierholz, EPI president and co-author of the report. “It’s not just gig workers and journalists who are harmed by employer misclassification—nail salon workers, truck drivers, and construction workers are among the most impacted occupations. Allowing employers to exploit loopholes in labor law puts these workers at greater risk.”
The analysis recommends that policymakers at the federal, state, and local levels act to crack down on misclassification and enforce the rights to which all workers should be entitled. Policymakers should establish or expand the use of a strong, uniform protective legal test for determining employee status and pass the Protecting the Right to Organize (PRO) Act, which would make it harder for employers to misclassify employees in order to prevent them from forming a union and bargaining collectively.