Worker misclassification robs employees of more than salaries

Independent contractor or full-time employee? Which of these two buckets a worker falls into can have far-reaching implications for their career, including how much they earn, how much they’re taxed, what kinds of benefits (if any) they receive and whether they have access to worker protections.

For employers, classifying a worker as a contractor can save the company a lot of money in labor costs and relieve it of many of the legal responsibilities that come with looking after full-time or W-2 employees.

Misclassifying someone who does the work of a full-time employee as independent contractor can have broader societal effects, resulting in millions of dollars in lost funding to state safety net programs each year. That’s what is happening in Washington state, according to new study by Harvard Law School’s Labor and Worklife Program.

Based on a conservative estimate that about 45,000 workers who were misclassified each year from 2013 to 2017, the study found that Washington state lost $152 million in unemployment taxes and $268 million in unpaid workers’ compensation premiums, in addition to a shortfall of nearly $300 million  in Social Security and Medicare taxes and $9 million in federal unemployment insurance taxes.

Classifying a worker as an independent contractor instead of a full-time employee can potentially save as much as 30 percent in labor costs, said the researchers, who focused specifically on cases in which companies misclassified workers to save money and thereby violated employment laws.

“Employers that misclassify their workers as independent contractors intentionally or not cheat their workers out of wages and other protections and benefits those workers have earned,” said Washington Attorney General Bob Ferguson. “This problem is not new, but this Harvard Labor and Worklife Program report shines a light on the degree to which this problem impacts Washingtonians.”

While the app-based gig economy (aka Uber economy) has brought greater attention to the problems of misclassifying workers, the practice was found to be most prevalent in Washington in the more traditional sectors of construction, clerical services, and hotels and restaurants.

Emery Reddy helps workers. Call us at if you have a question about your employment status, or if you have an L&I, workers’ comp, injury, or employment law claim. You won’t get better advice.

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