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Employees are increasingly being misclassified as independent contractors by employers. The result is several hard working men and women are being denied the protection of workplace laws such as the Fair Labor Standards Act (FLSA), The Family Medical Leave Act and numerous other federal worker protection laws.

Generally speaking, an employee, as distinguished from an independent contractor, is engaged in a business of his own, is one who “follows the usual path of an employee” and is dependent on the business he serves.

Why do businesses Misclassify?

A few of the reasons employers misclassify employees as independent contractors is:

  • They pay less to retain skilled workers;
  • Avoid regulatory burdens;
  • Avoid benefits, and costs including unemployment and workers’ comp;

In fact, it has been estimated that employers are saving anywhere from 20 and 40 percent on their labor costs.

In 2000, a study by the U.S. Department of Labor discovered that between 10 to 30 percent of audited employers were misclassifying workers. While a 2009 report by the Government Accountability Office (GA) estimated independent contractor misclassification cost the federal government an estimated $2.72 billion revenues in the year 2006.

A 2007 study by Cornell University School of Industrial Labor Relations, based on audits by the New York DOL UI Division of select industries from 2002 – 2—6, estimated annual misclassification rates of 10.3 in the state’s private sector and approximately 14.9 percent in the construction industry.

These are just a few examples of the FLSA violations happening across the country.

The factors the Supreme Court considers significant when determining employee versus independent contractor, although no single one is regarded as controlling, are outlined here for further review.

For more information, please contact your local Wage and Hour District Office.

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