Bill Aims To Stop Employers From Incorrectly Classifying Employees As Independent Contractors

(Alex Behrens)

In general, an independent contractor or freelancer is a worker who runs their own business but is hired by others for specific purposes and projects. But a growing number of employers have been using the independent contractor label on what had long been considered employees, often with the goal of shedding the cost of contributing to insurance and retirement benefits. A new piece of legislation seeks to make sure that businesses aren’t mislabeling employees as contractors.

The Payroll Fraud Prevention Act of 2015 [PDF], introduced by Sen. Robert Casey of Pennsylvania and Sen. Al Franken of Minnesota, would amend the Fair Labor Standards Act to require that workers understand whether they are being classified as an employee or a non-employee contractor, and what the implications are for non-employees in terms of benefits, and legal protections generally afforded to employees.

Workers would also be made aware of their rights to file grievances about their classification, while employers could face penalties for misclassifying workers, or for taking actions against those workers who challenge their status. Misclassified employees would be allowed to seek lost wages and possibly damages.

There are already 50 million American workers classified as non-employee contractors, freelancers, or temporary workers, and the number is expected to grow to 60 million before 2020, meaning nearly 40% of the U.S. workforce would be without access to protections like unemployment insurance, workers’ compensation, and retirement benefits.

The senators sponsoring the bill allege that when companies shift their employee base to “contractors,” they’re forcing the hands of competing businesses to do the same in order to keep their costs down too.

A 2009 report from the Treasury Inspector General for Tax Administration said that the tax revenue lost by misclassified employees is “markedly higher than $1.6 billion.”

“We owe workers a fair shot at good jobs where they can receive basic workplace protections,” says Sen. Casey in a statement. “Too many workers are classified as independent contractors when it’s clear that they are employees.”

Adds Franken, “These workers often don’t qualify for things like minimum wage, overtime pay, workers’ compensation insurance, and retirement benefits. Our legislation would crack down on payroll fraud, a practice that is hurting our workers, costing taxpayers, and putting businesses that play by the rules at a competitive disadvantage.”