The high cost of unemployment insurance, worker’s compensation and other benefits has left a number of employers looking for ways to slash their expenses. In the past few years the number of workers classified as contractors rather than employees has increased. Yet, a good number of people are misclassified and are losing out on benefits they are entitled to receive. How big is the problem? According to a number of sources, misclassification is widespread and growing.
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LITMUS TEST
In Illinois, the Employee Classification Act was passed in 2008 to further differentiate an employee from an independent contractor. This law states that individuals are automatically considered employees of a firm unless they pass several tests. Of these, perhaps the most significant is that the worker is free from “control or direction” of the company. All else being equal, workers who severely have their freedom limited should be classified as employees.
Certain factors determine the level of control an employer has. The court may consider whether a worker must adhere to a strict schedule, wear a uniform, or sign a non-compete agreement.
Courts will also consider whether the work performed is outside the normal scope of a company’s business. The more closely the work relates to the needs of a particular business, the more likely an individual is to be classified as an employee. Courts also examine whether the individual is personally engaged in an independently-established business or trade.
GROWING PROBLEM
The Economic Policy Institute, a Washington think tank dealing with labor issues, reported earlier this year that somewhere between 10 and 20 percent of all employers misclassify an employee as an independent contractor. This group also claims that the number of misclassified employees has steadily increased since the 1990s.
The Illinois Department of Employment Security agrees. This agency claims that in 2013, more than 20,000 workers throughout the state were wrongly classified by their employers. This resulted in a loss of more than $250 million in the way of lost wages and benefits such as those that support injured or laid-off individuals.
AFFECTS CERTAIN INDUSTRIES MORE
The report issued by the Economic Policy Institute claims that improperly classified workers can now be found in nearly every industry. Even so, workers in certain industries are more susceptible to this phenomenon. The construction industry was specifically named as being one that regularly misclassifies workers, and covers a broad base of occupations ranging from landscapers to those in the building trade.
EMPLOYERS GAIN
Marc Poulos is a representative of the Operating Engineers Local 150 union, helped draft the Employee Classification Act of 2008. He claims that employers continue to misclassify workers because it is “extremely lucrative” for companies to do so. By classifying workers as independent contractors, they can forego making matching contributions to Social Security and can avoid a number of other payroll expenses. A University of Missouri study claims that employers could reduce payroll expenses by up to 30 percent by misclassifying employees.
Reducing payroll taxes isn’t the only way businesses can benefit. In some cases, they can also avoid paying overtime, or get by with paying their workers less than $8.25 per hour, which is the Illinois minimum wage.
OBTAINING BENEFITS
The difference between an employee and independent contractor often becomes painfully obvious whenever an individual becomes injured while on the job. Independent contractors are not eligible for benefits, and can therefore suffer severe financial hardships as a result. The injured worker still has channels through which he can pursue a claim.
Those who are injured should first file a worker’s compensation claim with the company’s carrier. Should benefits be denied, workers may then file an Employee Classification Act complaint form with the Illinois Department of Labor. While it isn’t necessary to have assistance from Chicago workers compensation lawyers, obtaining help could nonetheless be beneficial. An attorney can provide advice on the type of information to include, in addition to reviewing it for clarity and accuracy.
Chicago workers compensation lawyers could be needed to help injured workers initiate a civil action. Illinois law allows misclassified personnel to initiate a personal injury lawsuit to recover damages whenever employers fail to provide the proper insurance. The amount of damages one can obtain is unlimited.
Many people allow themselves to become misclassified out of fear, believing they will lose their job if they do not agree to be labeled as independent contractors. Recent changes in Illinois law aim to reduce the exploitation of workers and ensure that every business throughout the state pays its fair share.
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