“Contractor” Employee Misclassification is Costing Companies – Again


As a cable-television installer in Massachusetts, Fritz Elienberg drove a van and wore a shirt emblazoned with “Comcast.” He installed equipment from Comcast Corp., and customers paid the cable provider for his work.

Mr. Elienberg wasn’t a Comcast employee, but a so-called independent contractor working for a separate company. This month, Mr. Elienberg sued both companies, for allegedly depriving him and other contractors of overtime pay and benefits by not considering them employees.

The case highlights a perennial issue for employers that is gaining new prominence during the recession. Lawyers say employers are trying to avoid hiring full-time employees by tapping contractors, as workers seeking better pay and benefits turn to the courts. Employment law firm Ogletree, Deakins, Nash, Smoak & Stewart PC has seen a 13% rise in misclassification claims this year, compared with the same period in 2008, attorneys estimate.

Meanwhile, revenue-strapped government agencies are cracking down, seeking unpaid taxes. Last month, the Internal Revenue Service said it will audit 6,000 random U.S. employers beginning in February, marking its first attempt since 1984 to quantify how many employers misclassify workers.

Employee, or Contractor?
The Internal Revenue Service considers three types of factors to determine if a worker is an employee or independent contractor:

  • Behavioral: Does the employer dictate how the work is done?
  • Financial: Does the employer provide tools? Does it pay by the job or the hour?
  • Relationship: Is the work ‘key’ to the employer’s business?

Source: Internal Revenue Service

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