Why do employers misclassify employees as independent contractors?

If you’re a responsible, productive employee who works hard for a Sacramento business, you might well wonder why an employer would want to misclassify you. The answer is simple: it saves him money.

By misclassifying workers as independent contractors rather than as employees, an employer hopes to avoid paying for worker protections such as unemployment insurance, minimum wage, overtime compensation, health insurance and workers’ compensation benefits.

Reducing overhead, gaining advantage

An employer who successfully misclassifies workers enjoys significantly reduced labor costs, which gives him a clear advantage over business rivals – an edge that’s especially significant when businesses engage in competitive bidding on projects.

Not only are workers and business rivals harmed by employee misclassification, state and federal governments suffer, too. They lose tax dollars the employer should have paid to help fund programs such as Social Security and Medicare.

Avoiding workers’ comp insurance

According to the state’s Department of Industrial Relations, “all California employers must provide workers’ compensation benefits to their employees.” If a business has one or more employees, it must buy workers’ comp insurance – a requirement that often motivates unscrupulous employers to misclassify workers.

The business’s workers’ comp premiums are determined by its history of work-related injuries, its payroll size and by the type of work it does.

Workers’ comp benefits

Workers in certain jobs common in California – construction, roofing, commercial driving (or ride-share driving), landscaping, mechanics, maintenance, health care workers and others – are at greater risk of on-the-job injuries and  therefore more likely to require workers’ compensation benefits that include:

  • Medical care, including surgery and hospital stays
  • Physical therapy
  • Nursing care
  • Prescriptions
  • Chiropractic treatments

Workers’ comp also replaces two-thirds of your wages lost while you can’t work. The current weekly minimum is $203 per week, while the maximum is $1,356 per week.

Taking action

If you believe you’ve been misclassified as an independent contractor, you should file a report with the state’s Labor Commissioner’s Office.

If you’ve suffered an on-the-job injury, file a workers’ compensation claim with the Department of Industrial Relations, and if your claim has been denied or you have a dispute over benefits, speak with a skilled legal professional about your options.