Unpaid Overtime Just One Missing Piece in Employee Misclassification Puzzle

Pittsburgh, PAAny individual trying to support himself or his family will do just about anything to secure work—even if that means being misclassified as an independent contractor and losing unpaid overtime, workers' compensation benefits and other provisions.

For state government officials in Pennsylvania, there can be even more frustration. Patrick Beaty, the deputy secretary for Unemployment Compensation Programs for the Pennsylvania Department of Labor and Industry, tells the Pittsburg Post-Gazette that the state's Unemployment Compensation Fund is underfunded.

The estimate is that as many as 580,000 workers in the state of Pennsylvania, or nine percent of the state workforce, are misclassified as independent contractors.

"If a worker doesn't get laid off, doesn't get hurt and gets paid minimum wage, from the worker's perspective it could be 'no harm, no foul,'" says Beaty. "But from my perspective, I'm still out $200 million in a trust fund that is insolvent."

That's one of the reasons why state officials as well as groups of employers who do it by the book are attempting to level the playing field by curtailing the practice of misclassifying employees.

A properly classified employee working for a firm has the right to benefits an independent contractor would not expect to receive, including workers' compensation. The provision for overtime pay, which is a protected right under federal and state labor laws for employees, is often ignored when workers are miscast as independent contractors.

Such a practice also puts legitimate employers at a disadvantage, as their employment costs are higher. When it comes time to bid on jobs or projects, the dishonest employer can easily and often outbid the more honest employer for contracts.

In Pennsylvania, it is estimated that employers who fail to pay workers' compensation premiums are costing the system about $81 million each year in unpaid premiums.

US Rep. Jim McDermott (D-WA) says the federal government loses about $3 billion a year worth of income, payroll and unemployment taxes.

And while the monetary cost to the misclassified employee is a fraction of that amount, the cost to his health and lifestyle could be significant: long hours with low pay, unpaid overtime and a lack of benefits in times of crisis.