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How job misclassification hurts workers

Federal and state laws govern workers' wages and hours. One of the most common wage-and-hour law violations occurs when employers misclassify workers as contractors, instead of employees.

Misclassification is an important issue because it can cost workers thousands of dollars in pay and benefits. When classified as contractors, workers are not covered by laws regarding overtime and workers' compensation. Misclassification also affects payroll tax revenue.

Sometimes misclassification occurs because the employer misunderstands wage-and-hour laws. Other times, however, misclassification is intentional. 

Why do some companies intentionally break this law? It can save them hundreds of thousands of dollars. A recent case in California is a good example.

A $6.3 million lawsuit

The State of California’s Labor Commissioner’s Office filed a lawsuit in August against a construction company. The issue is misclassification. The lawsuit was filed on behalf of 249 workers and seeks $6.3 million for “wage theft violations” and the “willful misclassification of 175 workers as independent contractors,” according to a press release.

The lawsuit says the company tried to avoid paying overtime to workers who typically worked between 55 and 60 hours per week. The underpayment occurred for nearly two years, according to the lawsuit.

What’s the difference between employees and contractors?

The difference between an employee and a contractor is a question of control, according to FindLaw. When an employer has total control over how a worker does his or her job, then the worker should be classified as an employee. When the employer has control of only the finished product, then the worker should be classified as a contractor.

Here are examples of common differences between employees and contractors, according to FindLaw:

  • Employees work for one company. Contractors work for multiple clients or companies.
  • Employee work hours are set by the company. Contractors set their hours.
  • Employees work under the direction of the employer. Contractors work independently.
  • Employees typically work at the employer’s place of business. Contractors typically work in their own offices.

In Missouri, the Department of Labor and Industrial Relations investigates wage-and-hour complaints. 

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