Why is worker misclassification a problem?



From the Fort Worth Star-Telegram —  “Treating workers as independent contractors isn’t a business decision that company owners have the right to make without considering federal laws.

The Internal Revenue Service and the U.S. Department of Labor have the final word. Each agency has a list of rules and tests – sanctioned by the courts – to figure out whether someone is an employee or an independent contractor. The tests center on control, both financial and behavioral. Does the boss dictate when and how the worker gets the job done? Is the compensation enough to allow the worker to operate as if he’s self-employed with overhead of his own?

The federal government sets these limits for good reasons. Since the Industrial Revolution, America’s leaders have expected industry to clean up its own messes. If a worker gets hurt on the job, it’s the company’s duty to cover hospital bills. If the company falters and needs to lay off or furlough workers, it must tap unemployment insurance to protect the worker from further hardship. Those safety nets prevent the rest of society from footing the bill.

There’s another purpose: The company acts as a tax collector of sorts. Before employees pick up their paychecks each week, the company siphons off the pieces of it that Uncle Sam demands in taxes.

The practice works. The IRS says it collects 99 percent of what it’s owed from employees on the payrolls of companies.

Workers treated as contractors, on the other hand, often elude tax collection. The IRS estimates that those workers who file taxes for income they must declare themselves under-report their wages by 56 percent. This includes workers receiving 1099 forms. Those operating cash-intensive businesses are even less compliant, reporting as little as 19 percent of their income to the federal government…”

Read the full story at Why is worker misclassification a problem?

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