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Employee Misclassification: Impact & Correction

Instructor: Joseph Madison

Joseph received his Doctorate from UMUC in Management. He retired from the Army after 23 years of service, working in intelligence, behavioral health, and entertainment.

This lesson will delve into how people are classified intentionally and unintentionally as contractors instead of employees. It will also cover how this impacts the employees and how to correct the issue.

Independent Contractors and Employees

There are two classifications of people that work for a company. There are the employees which are actually employed by the company and work under their name. Employees are guaranteed to work for a company until they quit or their work is unsatisfactory enough that they are terminated. Then there are independent contractors, which are people who work for themselves, but are hired by a company to do a job or task. Contractors are hired for a specific period of time or a specific job. For example: a person who is hired to open a call center will work the year or more it will take to set up and get the center running. However, after the call center is up, they are not guaranteed a renewal of a contract, though that also can happen.

Misclassification Problems

The differences between employees and contractors are vast, which is why misclassification can truly be an issue. If someone who was meant to be an employee is misclassified as an independent contractor, they will be left without:

  • Benefits - Medical benefits are not provided to contractors, which means they must pay for them out of pocket.
  • Leave - Contractors do not receive sick time, FMLA, vacation time, or maternity/paternity leave. This is all time and money the contractor has to save up themselves, if these specific issues come up.
  • Requirement for a Certain Wage - Contractors do not have laws that require minimum wage. So a contractor can be hired at less than minimum wage, and the individual will have no recourse.
  • Overtime - A contractor is paid a specific rate for a job or time period. This means that if the job takes longer than originally planned, there is still no overtime. However, it is also true that if the job takes less time, they still get paid the full amount.
  • Workers Compensation - If a person gets hurt on the job, the independent contractor will not be eligible for worker's compensation. Workers compensation is where an employee will get medical bills paid, paid time off, and medical needs paid for if they are injured on the job.
  • Unemployment - Once a contractor is finished with the job and their contract is not renewed, they are essentially jobless. However, even though they are jobless, they are not eligible for unemployment, which means they will not be given money and benefits while they are looking for another position.

Now that we can see everything an independent contractor does not receive, you can see how terrible it would be if someone who is supposed to be an employee is termed an independent contractor. This can be doubly troublesome because someone may go months without knowing they do not have benefits, and then they try to go on leave and are shocked that they cannot.

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