IT'S TIME TO PLAY BY THE RULES !

The Impact of Worker Misclassification

ILR study influences national and state policy

What is the cost to workers, businesses, and New York State government and taxpayers when employers misclassify workers as independent contractors instead of classifying them as employees?

The impact on all parties is substantial and real. Misclassified workers are denied many of the legal protections and benefits enjoyed by workers appropriately classified as employees. Businesses that misclassify workers as independent contractors reap an unfair competitive advantage over businesses that properly classify workers as employees; misclassification occurs frequently in the construction industry. Government and the public bear a financial burden through lost tax revenues.

These are just some of the findings from a study co-authored by Linda Donahue, Senior Policy Analyst, James Ryan Lamare, Ph.D. Student, and Fred B. Kotler, Director, NYS AFL/CIO Cornell Union Leadership Institute called "The Cost of Worker Misclassification in New York State."

The study was sponsored by UNICON, a construction industry labor-management organization based in Rochester, NY and was funded by the New York Senate Labor Committee (Senator George Maziarz, Chair). A full copy of the article is available in the DigitalCommons@ILR online repository.

Study findings and conclusions

The study covers key industries in New York State for the years 2002-2005. Audits performed by the Department of Labor Unemployment Insurance Division indicate approximately 10% of private-sector employers did not comply with state regulations when classifying new hires; construction industry employers accounted for an estimated 14.9% of this group. The data also show that approximately 10.3% of private-sector workers are misclassified as independent contractors and about 14.8% of this cohort works in construction.

In addition, the study offers several solutions to address the problem, including clarifying the guidelines used to determine the proper classification, ramping up enforcement, presuming employee status, bringing independent contractors under the protective labor law umbrella, and expanding education and outreach to workers and employers. Although the data used here are specific to New York State, its conclusions are consistent with similar studies conducted in other states and by the federal government.

Visibility on Capitol Hill

Given the swelling ranks of independent contractors (alternatively known as contingent workers) in the workforce, the misclassification issue merits the attention of policymakers and regulators.

On March 27, 2007, the issues surrounding misclassification and this study were incorporated in the testimony of John J. Flynn, President, International Union of Bricklayers & Allied Craftworkers, at the Workforce Protections Subcommittee Hearing. The hearing, "Providing Fairness to Workers Who Have Been Misclassified as Independent Contractors," was chaired by U.S. Representative Lynn Woolsey, and focused on the current misclassification crisis. Additional subcommittee hearings (Health, Education, Labor, and Pensions Subcommittee) are being scheduled later this month.

Influencing policy in New York State

Michael Conroy, Director of Organizing, Empire State Regional Council of Carpenters, uses this study in his presentations to contractors, developers, and legislators, educating them on the hazards of misclassification. He believes the study to be of great importance in the fight against misclassification. The study is bringing attention to this matter and is being circulated at the local government offices.

According to Assemblymember Susan John, the report has impacted how the issue of misclassification was dealt with in the workers' compensation reform package, which Governor Eliot Spitzer recently signed into law: 

"The research and report written by the ILR has paid dividends already for New York taxpayers. The workers compensation law enacted earlier this year included penalties for misclassification. The ILR study made the case in support of the Legislature's arguments for these stiff penalties. Many thanks to the students and staff who undertook this effort.

Related Destinations