“Misclassification of workers” refers to the practice by some businesses of classifying and utilizing workers as independent contractors instead of employees in order to avoid payroll taxes and insurance, and in an effort to increase margins and/or reduce costs. In some industries, this is done for the purpose of obtaining new contracts by being the low-cost bidder on the contract. Unfortunately, instead of utilizing salesmanship skills and providing high quality service and products, these companies choose to engage in this illegal practice to the detriment of:
- Their employees who are often underpaid, provided no benefits, and not paid for overtime hours worked,
- The federal, state, and local governments that lose out on payroll and income tax revenues, and
- Competitor companies who conduct their business with integrity and lose this business by being underbid.
By avoiding the costs associated with payroll taxes and liability and worker’s compensation insurance, businesses that misclassify workers realize a 20-30% price advantage in the marketplace. Illegitimate businesses are, sadly, aided and abetted by companies, many of whom are Fortune 500 companies, who encourage this practice by looking the other way and hiring them purely for profit motives. It truly is an underground economy which needs to be eradicated (See Underground Economy). Misclassification of workers, which historically has been more prevalent in the southern and border states where illegal aliens are often the victims of this practice, is rapidly becoming more common in northern states such as Indiana.
Interestingly enough, the Obama administration, federal, state, and local governments, big labor and legitimate businesses have some common ground with respect to misclassification of workers as independent contractors, albeit for very different reasons. Federal and state governments obviously have an interest because they are losing significant revenues, sorely needed in the current recession (See Efforts to Root Out Worker Misclassification Expand). The interest of legitimate businesses is due to the severe competitive cost disadvantage. Big labor’s interest is in organizing workers, which they cannot do if the workers are not employees. Finally, the Obama administration has interest in paying back big labor for its financial support.
Subsequently, the Obama administration has begun to take a serious look at this practice and appears intent on imposing fines on businesses who misclassify workers in an attempt to pacify big labor, which is disgruntled over the administration’s inability to pass EFCA or Card Check (See Government Cracks Down on Employee Misclassification and Criminal Penalties for Misclassifying Independent Contractors). Big labor and its puppet administration would have you believe it is for their favorite theme of social justice for workers, but in reality it is for financial gain through union membership, and ultimately for political power (See Unions Want Limits on Firms’ Use of Contractors).
It is truly ironic that elimination of such a controversial and illegal practice would be common ground for government, the Obama administration, big labor and legitimate businesses. It is sad that all the parties can’t agree; current laws, which are adequate to eliminate the problem, need to be enforced for the simple reason that misclassification is illegal and depresses wages and benefits for all American workers. Unfortunately, big labor and the administration see this as an opportunity to further their quest of imposing forced unionism through employer fines, which are exploited by unions in corporate campaigns to coerce companies into signing neutrality agreements. Neutrality agreements, in effect, accomplish Card Check as is vividly chronicled in The Devil at My Doorstep. So much for altruistic motives.
About the author: David A. Bego is the President and CEO of EMS, an industry leader in the field of environmental workplace maintenance, employing nearly 5000 workers in thirty-three states. Bego is the author of “The Devil at My Doorstep,” based on his experiences fighting back against one of the most powerful unions in existence today.