Worker misclassification occurs when a worker who meets the statutory or common law definition of an employee is treated as a self employed worker or independent contractor. Whether by agreement, out of ignorance or misunderstanding, or intentionally, there are employers who fail to properly claim a worker as an employee.
An employer does not avoid its obligations by failing to acknowledge a worker as an employee, but enforcing compliance with the law can be difficult.
Disadvantage to Workers
Workers are disadvantaged when they are deprived of minimum wage or overtime pay and are forced to pay the employer’s portion of withholding taxes. Furthermore, they are left with no recourse if they are injured on the job, as they have no worker’s compensation coverage, and are not protected by occupational safety and health rules which also cover only employees. Those same workers have no access to the protection of the Americans with Disabilities Act, Age Discrimination in Employment Act and Family Medical Leave Act, among others. Some misclassification is discovered only when a worker is injured and seeks worker’s compensation coverage, only to find that none exists. Other misclassification is an intentional act on behalf of both the employer and the employee to avoid the reporting of wages and payment of tax obligations. Less sophisticated workers may not understand that despite an employer’s attempt to characterize them as non-employees, if they meet the definition, the employer is required to meet its obligations for them.
Disadvantage to Employers
Employers are disadvantaged when competitors misclassify employees and accordingly have lower labor costs. They lose work to these employers who are seemingly rewarded for their misclassification. These employers generally fail to keep records required of employers in Indiana. Additionally, those same employers avoid the need to document a worker’s right to work legally in the U.S. and Indiana.
Disadvantage to Governments
Governments are disadvantaged when employers fail to pay premiums to the Unemployment Insurance Trust Fund for individuals deemed employees by UI law. Governments also are harmed by the failure of an employer to withhold taxes on an employee, particularly due to the increased challenges of recovering taxes due directly from an individual. Furthermore, individuals who are injured on the job and don't have access to the worker's compensation benefits to which they are entitled often become dependent upon other social services as a result of their injuries and inability to work.
Reporting Worker Misclassification
If you have evidence of suspected worker misclassification and would like to submit a tip to the Indiana Department of Labor, please send your information to wagehour@dol.in.gov with the necessary details.
A tip must provide the following basic information in order to initiate an investigation.
1. Name of the employer (Who are the workers working for?)
2. Name of at least one worker who may be misclassified
3. Location where the work is being performed
Please do not send Social-Security numbers or confidential personal information.
Your tip will be shared with the Indiana Department of Workforce Development, the Indiana Department of Revenue and the Indiana Workers Compensation Board in accordance with Indiana Code 22-1-1-22.
Your tip will remain confidential.