BNA’s Daily Labor Report this morning reports that AFL-CIO Associate General Counsel William Lurye told an International Foundation of Employee Benefit Plans conference that misclassification of workers as independent contractors instead of employees is a "significant issue" that negatively impacts employers, employees, and taxpayers.  Per BNA (subscription)“:

In general, employers increasingly are classifying primarily low-wage workers as independent contractors instead of employees in the construction, home care and health care, professional and technical, and broadcast industries, Lurye said. By doing so, employers can issue these workers 1099 forms instead of W-2 forms to report their income, he said.
 
“So what’s the big deal?” Lurye asked. “The big deal is this — by doing that, they immediately gain a 30 percent advantage over an employer who complies with the law.”
 
That percentage is calculated from the savings the employer obtains from not withholding federal and state income taxes, FICA, FUTA, state workers’ compensation, and state unemployment insurance premiums from employee pay, he said.
 
Lurye said items not withheld by the employer “become the individual’s responsibility when he or she has to file their federal and/or state income tax returns.”
 
Additionally, workers themselves are adversely impacted by misclassification because they do not qualify for fringe benefits they would normally be entitled to as employees, he added. For example, for workers classified as independent contractors, no contributions are made on the worker’s behalf to any employer-based pension, health, or welfare plan, he said. Independent contractors also are not be entitled to unemployment or workers’ compensation benefits, Lurye added.

Of course, independent contractors are also not included in the definition of "employee" contained in the National Labor Relations Act.  Therefore, they do not benefit from the Act’s protections — including the right to organize.
 
The Obama Administration and current Congress share Mr. Lurye’s concerns and are pursuing the issue through a variety of means.  In a February 2010 Advisory, we noted that President Obama’s FY2011 budget "recommended awarding the U.S. Department of Labor (DOL) $25 million for the specific purpose of investigating and prosecuting employers who misclassify employees as independent contractors."
 
Late last month, Senator Sherrod Brown (D-OH) and Rep. Lynn C. Woolsey (D-CA) introduced the Employee Misclassification Prevention Act (S. 3254, H.R. 5107).  The bill would amend the Fair Labor Standards Act of 1938 to:

As noted by BNA, Mr. Lurye also higlighted the pendency of the Taxpayer Responsibility, Accountability, and Consistency Act of 2009 (H.R. 3408, S. 2882) which would amend a 1978 safe harbor provision in Section 530 of the Internal Revenue Code that protects employers that misclassify workers. 

This issue is gaining political momentum on both the federal and state levels.  Mr. Lurye’s remarks re-emphasize the fact that labor unions are also focusing on the issue.  Employers who rely upon independent contractors or other forms of contingent workforces would be prudent to take the time now to audit those relationships to minimize exposure to misclassification claims.