By Brendan O'Brien
Jan 22 (Reuters) - The U.S. Labor Department is planning a
study to determine how much workers understand about their own
job classification and rights. The $1.9 million study is an
effort to curb a practice in which employers allegedly
misclassify workers to avoid Social Security, unemployment
insurance and income tax obligations.
Employers "achieve significant administrative and labor cost
reductions" by misclassifying workers as independent contractors
instead of employees, the department said in an entry in the
Federal Register announcing the study.
In its announcement, made on Jan. 11, the department set a
March 12 deadline for comments on the planned study.
The U.S. Government Accountability Office estimates more
than $2.7 billion in Social Security, unemployment insurance and
income tax is lost per year due to misclassification of workers.
According to one estimate cited by the Labor Department, for
every 1 percent of employees who are misclassified, $200 million
is lost annually in unemployment insurance revenue.
"If you are a worker, it means that you have none of the
safety nets that we always talk about," said Harold Lichten, a
partner at Lichten & Liss-Riordan, who represents workers in
Lichten said the practice also causes worker compensation
insurance funds to be underfunded.
The misclassification of workers also allows employers to
avoid unionization because unions cannot organize independent
contractors, Lichten said.
The study is aimed at determining how much workers
understand about their own job classification and their related
rights and benefits. Interviews are to be conducted with 10,060
workers and 100 executives, and an additional 20 executives are
to be interviewed more deeply.
The Labor Department defines a misclassification as the
practice, intended or unintended, of improperly treating a
worker who is an employee as something other than an employee,
such as an independent contractor.
"It's a crackdown on something that, if done intentionally
and knowingly without any conscience, is wrong," said Richard
Reibstein, a partner at Pepper Hamilton, who represents
employers in independent contractor litigation.
"Most businesses are confused by what the test is to be an
independent contractor," he added. But "regardless of the
technical requirements, an independent contractor is someone who
decides the manner and means of how he's going to get the job
The department began a "Right to Know" initiative in 2010 to
update record-keeping regulations under the Fair Labor Standards
Act to "enhance the transparency and disclosure" to workers
regarding their status as an employee or independent contractor.
In 2011, it began a joint enforcement effort with the
Internal Revenue Service to clamp down on businesses that
misclassify workers as independent contractors.
The department has also embarked on a misclassification
program with state labor departments. A total of 13 states have
signed up for the program so far.
States including Massachusetts and New York have also set up
commissions to look at employee misclassification.
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