Worker misclassification occurs when a company labels a worker as an independent contractor, but state or federal law requires that worker to be treated as an employee. Why does it matter? Employment classification has huge stakes for both workers and employers. Workers who are classified as employees are ensured a slate of benefits and protections, from guaranteed overtime pay and minimum wage to unemployment and workers’ compensation insurance. They also typically pay less in taxes. Federal law requires employers to pick up the tab for half of a worker’s FICA taxes (a 15.3% tax that helps fund Social Security and Medicare), while independent contractors pay the full tax themselves. Add up these differences and employers stand to save about 30% on total labor costs by labeling workers independent contractors, leaving them without several critical social safety nets.
In Minnesota, misclassification is widespread. 2007 data—the most recent Minnesota figures available—suggests that almost 15% of employers statewide misclassify at least 1 employee. In certain industries, misclassification is even more rampant. The Minnesota Department of Labor and Industry found that one in three real estate, rental, and leasing companies had misclassified workers.
With the support of the Skadden Fellowship Foundation, MMLA’s low-income taxpayer clinic is thrilled to announce its Worker Misclassification Project. Eric Baudry, staff attorney and Skadden Fellow, will work with tax preparers to identify misclassification cases as workers receive help filing their taxes.
“An increased tax burden is among the most significant consequences for misclassified workers and receiving a 1099 instead of a W2 is one of the visible markers of misclassification,” Baudry said. “This makes tax preparation sites like Prepare and Prosper the perfect place to connect with misclassified workers in order to educate them about their rights and provide representation to increase their economic security.”
What will Baudry be looking for? Both state and federal laws dictate when a worker can be considered an independent contractor. “The IRS looks at factors like the employer’s control over the worker, the worker’s investment in the tools and materials needed for the job, and whether the worker is doing the kind of work typically done by the employer,” Baudry explained. “So, when we see an employer give explicit directions on how a job should be done, provide the tools the worker uses, and ask the worker to complete a project exactly in line with the company’s business model, but then the employer issues a Form 1099 instead of a W-2 when tax season comes around, it’s pretty clear there’s misclassification going on.”
Baudry anticipates that relationships with workers and worker advocates will also be critical to his project’s success. “Grassroots organizers and unions are often in the best position to educate workers about their rights and connect them with networks of supports,” Baudry noted. He looks forward to partnering with and supporting worker centers like Centro de Trabajadores Unidos en la Lucha (CTUL) and unions such as the North Central States Regional Council of Carpenters.
The Worker Misclassification Project is eager to hear from you! If you have questions about misclassification, think that one of your clients might be misclassified, or want to refer a case, feel free to contact Eric. He can be reached by phone at (612) 746-3627 or by email at ebaudry@mylegalaid.org.
You can also learn more about the project in early March at State Support’s free CLE: Better Know A Program: Mid-Minnesota Legal Aid’s Worker Misclassification Project.