EPI study estimates money lost by misclassified workers

A new analysis by the Economic Policy Institute (EPI) estimates that misclassified construction workers lose out on as much as $16,729 per year in income and job benefits compared with what they would have earned as employees. The study, which broadly focuses on worker misclassification across multiple industries, not only demonstrates the economic cost faced by workers when their employer denies their basic rights on the job; it also reaffirms the need for the United States Congress to pass pro-worker laws like the Protecting the Right to Organize (PRO) Act.

Worker misclassification is one of the more common ways bad-faith employers deprive workers of their rights and fair compensation. By incorrectly classifying an employee as an independent contractor, employers deprive workers of, among other things:

• Overtime wage and hour protections;
• The right to earn a minimum wage;
• Eligibility to participate in state and federal unemployment insurance systems or qualify for workers’ compensation insurance;
• National Labor Relations Act protections that guarantee workers’ rights to form a union and bargain collectively for better pay and benefits.

“Contractors who misclassify their employees aren’t just depriving those workers of pay, benefits and protections; they are actively bringing down the wages and working conditions in local areas, and exploiting working families in order to strengthen their market share – taking jobs from SMART members in the process.”

The EPI study analyzed the 11 professions most likely to be misclassified by employers, including home health aides, landscapers, truck drivers, janitors and nail salon workers. (Notably, the analysis pointed out, “people of color and immigrant workers are more likely to be in occupations where misclassification is common.”) For construction workers, the disparities for misclassified workers – especially when compared to the wages and benefits negotiated in a union contract – could mean the difference between a family-sustaining career and living paycheck to paycheck.

“According to our calculations, illegal misclassification costs the typical construction worker between $10,177 and $16,729 per year,” the EPI wrote in its study. “These estimates are both conservative because we have not attempted to place a monetary value on the worker’s loss, when misclassified as an independent contractor, of rights guaranteed by the National Labor Relations Act, including the possibility of union representation.”

The EPI added: “Policymakers should establish or expand the use of a strong, uniform protective legal test for determining employee status and pass the Protecting the Right to Organize (PRO) Act, which would make it harder for employers to misclassify employees in order to prevent them from forming a union and bargaining collectively.”

The devastating effects of worker misclassification demonstrate how important it is that SMART members and locals work to bring unorganized workers into the union.

“Contractors who misclassify their employees aren’t just depriving those workers of pay, benefits and protections; they are actively bringing down the wages and working conditions in local areas, and exploiting working families in order to strengthen their market share – taking jobs from SMART members in the process,” said SMART General President Joseph Sellers. “By fighting against misclassification and bringing those workers into SMART, we lift all workers up – including our current and future members.”

View the entire study here.