DOL: Mislabeling workers as contractors is ‘payroll fraud’

The Obama administration is looking to protect low-wage workers who are improperly classified as independent contractors as part of a push to fight back against income inequality.

The Labor Department is concerned about a growing number of companies that are misclassifying low-wage workers as independent contractors, who generally aren’t paid as much.

{mosads}Independent contractors are treated like businesses owners, rather than employees. In many cases, they are subject to lower pay, longer hours, and higher taxes — even if they have the same job responsibilities as a regular employee.

Critics complain that this is a way for businesses to hold wages down.

“Very often, people who are misclassified are paid through some scheme linked to output that is not based on the time they work,” said David Weil, administrator of the wage and hour division at the Department of Labor.

“If you then do the math, people who are being paid as independent contractors are not earning the minimum wage and are working well beyond 40 hours a week without receiving the overtime pay they are entitled to,” he added.

Weil spoke to reporters Monday about the Labor Department’s ongoing initiative to protect low-wage workers from being improperly classified as independent contractors. 

The agency recently released guidance for businesses explaining what constitutes an independent contractor and what constitutes an employee.

In addition to often receiving lower wages and working longer hours, independent contractors are responsible for paying the entire amount of their payroll taxes and do not qualify for unemployment insurance if they lose their job, Weil pointed out.

They may also receive less safety training from their employers, he added.

“Misclassification is a nice way of calling payroll fraud,” Weil said.

Misclassifying workers is particularly problematic among low-wage workers at restaurants, in the hospitality industry and at child care facilities, according to the agency.

“We’ve had instances where we know dishwashers are being misclassified as independent contractors,” Weil said. “This is really about a problem that is prevalent in a large part of our economy.”

Sen. Al Franken (D-Minn.), who joined the press call, said he is fighting against the problem of misclassified workers in his own state.

“A carpenter who has his own tool belt is an employee, and the next day he’s told he is an independent contractor, but he’s doing the same job,” he said.