Orange County Computer Lawyer Blog

Companies Falsely Classify Workers as Independent Contractors to Cut Costs

Throughout my career as a computer lawyer, I have worked as both an independent contractor and an employee.  From a worker’s perspective, the two situations are quite different.  Employers often try to classify employees as independent contractors to save money.

The practice of misclassifying bonafide employees as independent contractors is one that California employment lawyers have known about, but the practice seems to be gaining popularity in recent times. As companies try to cut corners and trim budgets, they have come more and more to rely on unscrupulous means of saving on payroll costs by misclassifying workers as independent contractors. By doing this, a company can save up to 30 percent of its payroll and insurance costs. That’s not peanuts in a tough economy.

• Employers with independent contractors can save on Workers’ Compensation cover for these workers.
• Besides, they can save on unemployment insurance.

Now, the Internal Revenue Service is acting to stifle this practice.  At least 37 states are gearing up efforts to crack down on companies that engage in such unethical measures. According to the Society for Human Resource Management, a survey it conducted in December 2008 found that 12 percent of the companies surveyed were proceeding to use more and more numbers of independent contractors and temp workers. Needless to say, such practices also rob states of much needed income during a recession as more and more unemployed persons join the ranks. The practice seems to be especially widespread in the construction industry.

In the state of California, prosecutors have been cracking down on employers who have engaged in such practices of misclassification. One couple that failed to pay Workers Compensation fraud, but proceeded to file claims for injured but uninsured workers, may have penalties of up to $38 million levied against them.

Companies engaged in such misclassification are also being sued by their workers.  Janitors at Target stores in Texas are suing the retail giant, while Target insists the workers were never employees. FedEx is currently in the process of setting a case in California airing from misclassification of workers.

Workers who are misclassified in this way may have other hazards awaiting them, because employers are not required to maintain Workers’ Compensation cover for these contractors. Therefore, they may have no access to medical benefits when they are injured on the job. Unfortunately, many of them seem to find out that they are not eligible for Worker’s Classification benefits only after they have been injured, and the company refuses to pay their medical expenses.

If you have question regarding your status and an employee or independent contractor, you should contact a knowledgeable and experienced California employment law attorney.