How misclassification affects workers

Misclassifying employees as independent contractors puts workers at risk in a number of ways.

Published on 30 Jun 2023

Worker misclassification is a growing issue, with many countries beginning to clamp down on the misclassification of full-time employees as independent contractors.

While misclassification has long been an issue, especially in industries such as construction, service and retail, and truck driving, the so-called ‘gig economy’ – a labour market comprised of temporary or part-time positions, held by independent contractors and freelancers – is booming with the rise of food delivery and ride apps such as GrubHub and Uber. Though it is now valued globally at $455 billion, this boom has brought with it a host of issues related to worker misclassification.

What is misclassification?

Misclassifying full-time employees as independent contractors is an illegal practice, which can result in serious penalties for both the worker and the employer. There have been many recent high profile cases of misclassification, involving companies like Nike and FedEx.

The deliberate misclassification of workers is generally done to avoid paying minimum wage, overtime, taxes, insurances, and employee benefits. While it may save money in the short-term, the long-term repercussions of misclassification can be severe. Misclassifying workers leaves the business open to serious penalties, while also leaving the worker dangerously exposed – uninsured, unsupported, and, often, under paid.

If misclassification is found to have taken place, the offending business can be subject to large fines and the revocation of their sponsorship licenses. Recently, a nightclub in Baltimore was ordered to pay more than $1.1 million to exotic dancers, who were misclassified as independent contractors and, therefore, had been denied minimum wage. Earlier this year, T-Force settled a $15.5 million class action lawsuit for misclassifying workers.

How does misclassification affect workers?

Misclassification can be extremely problematic for workers. In extreme cases, it can lead to wage theft, withholding of wages, delayed or improper treatment of workplace injuries, and intimidation.

Business Insider reports that among the jobs in which misclassification typically occurs, being misclassified can cost the worker anywhere between 17% and 34% of their deserved wage. Forbes reports that, on average, misclassified workers lose close to $17,000 per year in lost income and may not even realise what is being denied to them.

Beyond losing money, misclassification puts many workers at physical risk – due to the nature of many of the industries, in which misclassification is rampant and leaving them uninsured and underpaid. A recent report for Workday Magazine exposed the realities of worker misclassification in the US construction industry, an industry in which workers are at increased risk of workplace injury. The article detailed the case of a construction worker, who was misclassified as an independent contractor. He suffered severe injuries in the workplace, was left without insurance, and was threatened with violence if he came forward.

The EU Commission estimates that within in the EU alone, the sector will increase from 28 million workers to 43 million workers over the next two years. As the gig economy continues to grow exponentially, it is crucial that employers are aware of the pitfalls and risks of misclassifying their workers – and that workers are aware of their right to be classified appropriately.