ILR Impact Brief – Employee or Independent Contractor? Misclassification Comes at a Price

Abstract

Misclassification of workers occurs at the time of hiring, when individuals are categorized as employees or independent contractors. The legal distinction between the two relates to the right of control over work: employees take direction from employers as to the means, methods, and outcome; independent contractors are in business for themselves and retain the right to control how they will accomplish the task they’ve been hired to perform. This study covers certain key industries in New York State for the years 2002-2005. Audits performed by the Department of Labor Unemployment Insurance Division indicate approximately 10% of private-sector employers did not comply with state regulations when classifying new hires; construction industry employers accounted for an estimated 14.9% of this group. The data also show that approximately 10.3% of private-sector workers were misclassified as independent contractors and about 14.8% of this cohort worked in construction.