If you’ve been following workers’ compensation in recent years, you may have heard the phrase “worker misclassification”. While the misclassification problem isn’t new, how states are approaching it is.
Worker misclassification is when an employer labels workers as independent contractors, when they should be labeled as employees. Although this practice is sometimes a mistake, often times employers do it to avoid paying certain taxes and benefits, like workers' compensation.
Under state laws, employers are not required to provide workers’ compensation coverage for independent contractors but are often required to provide such coverage for their employees. The incentive to misclassify is high, because a workforce of independent contractors significantly reduces labor costs for an employer.
So how does the confusion arise? The difference between an employee and an independent contractor is complicated thanks to laws, court cases, and even state and federal agencies. The most simplistic way of explaining the difference between the two is determining if the employer has the right to control the work - for employees they do, for independent contractors they don’t. Therefore, there are cases where an individual may appear to be an employee but is actually an independent contractor, and vice versa. This confusion is the basis for many legal battles in the world of ridesharing apps, like Uber.
In 2017, North Carolina Governor Roy Cooper, signed SB 407 into law which established the Employee Classification Section of the Industrial Commission to investigate reports of employee misclassification in North Carolina. Additionally, in the first two months of 2018, we have seen several employee misclassification bills filed across the country.
In Vermont, bills were filed in the House and Senate, one to create a commission to investigate and evaluate the negative impact of employee misclassification on workers’ compensation rates and the other to provide the Attorney General with information regarding employee misclassification reporting. Additionally, in Arizona, HB 2517 establishes a task force to study and make recommendations regarding employee misclassification in the construction industry.
As society changes and employment becomes more fluid, employee classification will become even more critical to protecting workers, but it will also become even more complicated. Determining whether an individual is an employee or an independent contractor is difficult at best, and as employers inadvertently and strategically misclassify employees, states are gearing up to help combat the problem.