Groups lining up to stop employment practices they say are abusive to workers
They are janitors, laborers, delivery drivers, writers, computer programmers. All are employed by companies -- many wearing company uniforms, working on company computers in company offices performing the work that the company sells -- but technically they are working for themselves as independent contractors, freelancers, consultants or contract workers.
State and federal governments, unions and even employers who do not classify their workers as independent contractors are trying to stop this practice.
To a worker in need of a job when there are few jobs to be found, the way in which they are classified may not seem to be a big deal.
"If a worker doesn't get laid off, doesn't get hurt and gets paid minimum wage, from the workers perspective it could be 'no harm, no foul'," said Patrick Beaty, the deputy secretary for Unemployment Compensation Programs for the state's Department of Labor and Industry. "But from my perspective, I'm still out $200 million in a trust fund that is insolvent."
Mr. Beaty is referring to the state's Unemployment Compensation fund, which he said is being underfunded because 580,000 workers or approximately 9 percent of the state's workforce are misclassified as independent contractors.
Mr. Beaty said companies that are classifying workers as employees are being hurt by those that aren't when it comes to bidding on jobs.
It's the bidding process that is driving construction companies to classify lower skilled workers as independent contractors when they should be employees, Mr. Beaty said. While construction is an industry full of highly skilled and licensed workers, such as electricians, who may qualify as independent contractors, often subcontractors treat lower skilled workers the same way. Mr. Beaty said construction workers make up 26 percent of all of the workers who are considered misclassified employees by the state.
Catherine K. Ruckelshaus, the legal co-director of the National Employment Law Project said that by not paying for benefits, workers compensation or unemployment insurance, companies can save 30 percent of the cost of hiring help.
Legally, an independent contractor is supposed to running his or her own business, which is not material to the business it is supporting.
The example Ms. Ruckelshaus and others use is that there is a difference between a software company that hires a plumber to repair the bathroom -- in which case the plumber would indeed be an independent contractor -- and a software company hiring computer programmers to work in the office writing code to company specifications from 9 to 5 and calling them independent contractors.
If a worker gets laid off and applies for unemployment and the state finds the worker should have been classified as an employee rather than an independent contractor, then the state will go after the employer.
It's not just layoffs that smoke out employers, who may be subject to paying back unemployment taxes for treating employees as independent contractors.
"The definition of an independent contractor is someone who hasn't gotten hurt yet," said Bruce Decker, senior vice president of the Pennsylvania Compensation Rating Bureau, which has estimated that companies that should be paying for workers' compensation insurance but aren't are costing the system $81 million a year in unpaid premiums.
On the federal level, the Department of Labor and Industry is seeking $25 million from Congress for a joint initiative with the Treasury Department to address misclassification of employees.
In a letter to the House Appropriations Committee supporting spending the money, U.S. Rep. Jim McDermott (D-WA) wrote that the federal government loses almost $3 billion a year in income, payroll and unemployment taxes because of the practice.
Ms. Ruckelshaus said the misclassification of workers is an issue that crosses party and industry lines. The U.S. Chamber of Commerce, which is known for it's pro business stands, has not taken a position on the classification of independent contractors. A spokesman said they are reviewing the issue.
According to the Department of Labor in a fact sheet on the Fair Labor Standards Act, factors that determine whether a worker should be considered an employee include "the extent to which the services rendered are an integral part of the principal's business," the permanency of the relationship between the worker and the company and "the amount of initiative judgement, or foresight in open market competition with others required for the success of the claimed independent contractor."
There are certain occupations -- such as newspaper delivery boys, church workers and real estate agents -- who would seem to be employees, but have been exempted from the unemployment compensation law.
A national example of the fight over who is and who isn't an employee has centered on Moon-based FedEx Ground, which classifies its drivers as independent contractors. Unions, workers and even Massachusetts have fought the company on whether the drivers are in fact employees or contractors.
FedEx Ground calls its drivers small business owners. They own their own equipment and, while FedEx provides a trip sheet for the drivers to follow, they can change the order of their deliveries to fit their own needs.
Critics argue that the drivers, who are told what to wear and what types of trucks to purchase, do not have enough autonomy to be classified as independent contractors.
When asked about the issue, a FedEx Ground spokesman Rob Bouleware said, "The company made the decision to deploy this model because we believed independent contractors would help us deliver the most reliable and cost-effective service in a market that was about to become intensely competitive.
"We were right. As small businesses with a direct stake in our company's success, independent contractors have shown flexibility, drive and efficiency not often found in a traditional driver workforce."
In times of high unemployment, it is an employer's market, so if a company does not want a worker to be classified as an employee, there is not much a worker can do, even though it might mean not being paid minimum wage, working unpaid overtime or being without benefits.
"The worker doesn't have any choice," Ms. Ruckelshaus said. "If she wants a job, she'll take it."
First Published May 9, 2010 12:00 am