During the recent economic downturn, money became scare and the construction industry took a hit as a result. In order to cope with slowing business, some construction companies hired employees and incorrectly designated them as independent contractors instead. Employers opted for the independent contractor designation so that they wouldn't have to pay overtime, taxes or insurance for the workers.
Not only is the practice of misclassification fraudulent, it really hurts workers and exploits employees. One construction worker in Dayton, Ohio said he felt forced to agree to the independent contractor label even though he did not fit the legal description. He had a family to support and needed the job.
Independent contractors are defined as such because they technically own their own business and control their business operation, like work hours. Independent contractors are also responsible for paying their own taxes, like payroll, unemployment and workers' compensation, therefore, if contractors are hurt or injured in a workplace accident they cannot recover workers' compensation from the company. They also may not be able to collect unemployment benefits. When a worker is not technically an independent contractor and only classified as such, this fraudulent activity leaves the worker in limbo without insurance or the ability to recover damages to pay for injury-related expenses or the loss of a job.
The practice is common in the construction industry because independent contractors often work side by side with regular company employees. In addition to hurting employees, the practice is also a drain on the government and results in huge revenue losses. Even though employers may need to cut corners during tough economic times, they still have a responsibility to promote workplace safety and provide workers' compensation for employees who are injured during the course of employment.
Source: Bloomberg, "States Clamping Down on Workers Mislabeled as Contractors," Jim Estathiou Jr., Oct. 18, 2013