Federal and state officials, many facing record budget deficits, are starting to aggressively pursue companies that try to pass off regular employees as independent contractors. [...]
Companies that pass off employees as independent contractors avoid paying Social Security, Medicare and unemployment insurance taxes for those workers. Companies do not withhold income taxes from contractors’ paychecks, and several studies have indicated that, on average, misclassified independent workers do not report 30 percent of their income.
Not having unemployment insurance also means that you lose the safety net that keeps you from economic ruin when your job disappears (do they give pink slips to independent contractors?) The article goes on to mention that independent contractors can’t form unions, and generally don’t receive overtime. Misclassification is a tool that’s used to isolate people from their co-workers and the protections of labor law. It’s arguably the crown jewel in a range of modern abuses in the private sector, including elimination of breaks, tip garnishment, coercing workers not to file for worker’s comp, off-the-clock work, and illegal deductions from paychecks (also known as straight-up “stealing”). There’s a great and extensive report on how widespread these problems are for working-class Americans here. (PDF link)
One thing that jumps out from the article:
“This denies many workers their basic rights and protections and means less revenues to the Treasury and a competitive advantage for employers who misclassify,” said Jared Bernstein, who as executive director of Vice President Joseph R. Biden Jr.’s Middle Class Task Force has helped orchestrate the administration’s campaign against misclassification. “The last thing you want is to give a competitive advantage to employers who are breaking the rules.”
I’d argue that you’d actually want to provide a competitive disadvantage to employers that engage in these kinds of practices: businesses that cheat their workers as a matter of course weaken the fabric of our entire society and pull the quality of life downwards for everyone, not just those working at their firm. The cost of shoveling risk onto the rest of society should be priced into the economic and regulatory systems in which these companies operate; as it stands, the enforcement effort is merely seeking lost wages and back taxes, so there’s no financial incentive for companies to proactively correct these issues. Serious penalties (or, at the extreme, a corporate three-strikes law) would provide a stick; using those penalties to provide a credit or benefit to companies that follow best practices could be a worthwhile carrot.
Finally, in the category of “accidentally sharp critique of capitalism:”
“The goal of raising money is not a proper rationale for reclassifying who falls on what side of the line,” said Randel K. Johnson, senior vice president with the United States Chamber of Commerce.
Yes, it’s true that making an extra buck isn’t a moral rationale for screwing with your workers, though I’m not sure Randel really thought that through before giving a quote to the paper of record.