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Office of the Assistant Secretary for Policy (OASP)

Evaluation of the Wage and Hour Division's Employee Misclassification

Overview

The purpose of this study is to assess the prevalence of employee misclassification through a nationally representative survey of workers. Worker misclassification can be understood as the practice, intended or unintended, of treating a worker who is an employee under the law as something other than an employee (i.e., an independent contractor, volunteer, intern or trainee), or treating a nonexempt employee as an exempt employee, depriving the employee of their legal wage entitlements, including minimum wage and/or overtime. Current labor law does not require employers to disclose information regarding employment status (whether the worker is an employee or not), exemption status (whether the worker, if an employee, is exempt or excepted or not from minimum wage or overtime pay requirements or both), the basis for those status determinations, or pay (including hours worked, pay rates, and wages paid) to workers. Because of this lack of required disclosure, employers may intentionally or unintentionally classify the worker as a contractor or intern and not an employee.

Goals

The project will administer a new survey to collect information about employment experiences and workers' knowledge of basic employment laws and rules to assess the prevalence of both intentional and unintentional employee misclassification.

Tasks

The primary tasks of the evaluation include:

  1. Design and cognitively test survey questions to be used for employee misclassification survey.
  2. Develop sampling methodology that will generate nationally representative samples of workers (or as close to nationally representative as possible).
  3. Conduct six focus groups across the country of employers and employer groups to explore the employer knowledge, attitudes, and practices around classifying workers.
  4. Execute the survey, analyze the data and report the results.

Existing Evaluation Evidence/Context

Employers who misclassify workers are able to achieve significant administrative and labor cost reductions, giving them a profound advantage. According to one estimate, if only 1 percent of all employees were misclassified nationally, the loss in overall unemployment insurance revenue due to underreporting would be nearly $200 million annually.1 This may be an underestimate; some states report losing between $5 and 20 million dollars annually on unemployment insurance payments alone.2 The GAO estimates that unpaid taxes total more than $2.7 billion dollars per year in unpaid Social Security, unemployment insurance, and income tax due to misclassification.3 A 2000 DOL commissioned study conducted found that 10 to 30 percent of firms audited had misclassified employees as independent contractors.4 In FY 2009, WHD investigators found about $2.6 million dollars in back wages owed to about 2,000 employees resulting from their misclassification as independent contractors.

Key Information

The period of performance of this evaluation is 24 months ending September 2013. The overall budget for the evaluation is $1,552,029. The evaluation contractor is Abt Associates. For more information on this evaluation please contact Jonathan Simonetta at simonetta.jon.a@dol.gov.


Footnotes

1 GAO-09-717 and Planmatics, Inc. Independent Contractors: Prevalence and Implications for Unemployment Insurance Programs. February 2000.
2 Statement of Seth D. Harris, Deputy Secretary, U.S. DOL, before the Committee on Health, Education, Labor, and Pensions of the U.S. Senate. June 17, 2010.
3 GAO-07-859T and Upper Midwest Employment Law Institute, 2010.
4GAO-09-717 and Planmatics, Inc. Independent Contractors: Prevalence and Implications for Unemployment Insurance Programs. February 2000.