Employment Arrangements
Improved Outreach Could Help Ensure Proper Worker Classification Gao ID: GAO-06-656 July 11, 2006Millions of U.S. workers participate in "contingent" employment, such as temporary or part-time work, and not in permanent or full-time jobs. The Department of Labor (DOL) enforces several labor laws to protect these and other workers, including the Fair Labor Standards Act (FLSA), which provides minimum wage, overtime pay, and child labor protections. In June 2000, GAO reported that contingent workers lagged behind standard full-time workers in terms of income, benefits, and workforce protections, and that some employees do not receive worker protections because employers misclassified them as independent contractors. GAO was asked to update this report by describing (1) the size and nature of the contingent workforce, (2) the benefits and workforce protections provided to contingent workers, and (3) the actions that DOL takes to detect and address employee misclassification. We analyzed DOL survey data on contingent workers and interviewed DOL officials.
Contingent workers constituted a relatively constant proportion of the total workforce from 1995 through 2005 and had diverse characteristics. While the population of the contingent workforce grew by an estimated 3 million workers during this time period, the proportion of contingent workers in the total workforce remained relatively constant at about 31 percent. In 2005, there were about 42.6 million contingent workers in the workforce. Contingent workers vary in terms of their demographic characteristics, industries, and occupations. For example, on average, contingent workers range in age from about 35 years for one category of temporary workers to about 48 years for self-employed workers. In addition, contingent workers are employed in a wide range of industries and occupations, including the services industry, construction, and retail trade. A smaller proportion of contingent workers than of standard full-time workers has health insurance or pension benefits, or is protected by key workforce protection laws, including laws designed to ensure proper pay and safe, healthy, and nondiscriminatory workplaces. While 72 percent of standard full-time workers received employer-provided health insurance in 2005, the proportion of contingent workers who received employer-provided health insurance ranged from 9 to 50 percent, depending on the category of contingent worker. With regard to pension benefits, 76 percent of standard full-time workers reported working for an employer who offered a pension, whereas 17 to 56 percent of contingent workers reported working for an employer who offered a pension. One reason that contingent workers are less likely to receive protections is that some laws contain requirements that exclude certain categories of contingent workers. DOL detects and addresses misclassification of employees by investigating complaints, but does not always forward misclassification cases to other federal and state agencies. Some workers do not receive worker protections to which they are entitled because employers misclassify them as independent contractors--a category of contingent workers excluded from many protections--when they should be classified as employees. DOL investigators detect and address employee misclassification primarily when responding to FLSA minimum wage and overtime pay complaints. DOL investigators examine whether a worker is an employee or an independent contractor to determine coverage under FLSA. DOL relies heavily on complaints from workers to enforce FLSA, but the FLSA workplace poster does not contain any information on employment classification or provide a telephone number for individuals to register complaints. Misclassification of employees may contribute to an FLSA violation or may violate laws enforced by other agencies, such as tax laws. DOL procedures require officials to share information with other federal and state agencies whenever investigators find possible violations of other laws. However, the district offices we contacted vary in how often they forward misclassification as a possible violation of other agencies' laws.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-656, Employment Arrangements: Improved Outreach Could Help Ensure Proper Worker Classification
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Report to the Ranking Minority Member, Committee on Health, Education,
Labor, and Pensions, U.S. Senate:
United States Government Accountability Office:
GAO:
July 2006:
Employment Arrangements:
Improved Outreach Could Help Ensure Proper Worker Classification:
Employment Arrangements:
GAO-06-656:
GAO Highlights:
Highlights of GAO-06-656, a report to the Ranking Minority Member,
Committee on Health, Education, Labor, and Pensions, U.S. Senate
Why GAO Did This Study:
Millions of U.S. workers participate in ’contingent“ employment, such
as temporary or part-time work, and not in permanent or full-time jobs.
The Department of Labor (DOL) enforces several labor laws to protect
these and other workers, including the Fair Labor Standards Act (FLSA),
which provides minimum wage, overtime pay, and child labor protections.
In June 2000, GAO reported that contingent workers lagged behind
standard full-time workers in terms of income, benefits, and workforce
protections, and that some employees do not receive worker protections
because employers misclassified them as independent contractors. GAO
was asked to update this report by describing (1) the size and nature
of the contingent workforce, (2) the benefits and workforce protections
provided to contingent workers, and (3) the actions that DOL takes to
detect and address employee misclassification. We analyzed DOL survey
data on contingent workers and interviewed DOL officials.
What GAO Found:
Contingent workers constituted a relatively constant proportion of the
total workforce from 1995 through 2005 and had diverse characteristics.
While the population of the contingent workforce grew by an estimated 3
million workers during this time period, the proportion of contingent
workers in the total workforce remained relatively constant at about 31
percent. In 2005, there were about 42.6 million contingent workers in
the workforce. Contingent workers vary in terms of their demographic
characteristics, industries, and occupations. For example, on average,
contingent workers range in age from about 35 years for one category of
temporary workers to about 48 years for self-employed workers. In
addition, contingent workers are employed in a wide range of industries
and occupations, including the services industry, construction, and
retail trade.
A smaller proportion of contingent workers than of standard full-time
workers has health insurance or pension benefits, or is protected by
key workforce protection laws, including laws designed to ensure proper
pay and safe, healthy, and nondiscriminatory workplaces. While 72
percent of standard full-time workers received employer-provided health
insurance in 2005, the proportion of contingent workers who received
employer-provided health insurance ranged from 9 to 50 percent,
depending on the category of contingent worker. With regard to pension
benefits, 76 percent of standard full-time workers reported working for
an employer who offered a pension, whereas 17 to 56 percent of
contingent workers reported working for an employer who offered a
pension. One reason that contingent workers are less likely to receive
protections is that some laws contain requirements that exclude certain
categories of contingent workers.
DOL detects and addresses misclassification of employees by
investigating complaints, but does not always forward misclassification
cases to other federal and state agencies. Some workers do not receive
worker protections to which they are entitled because employers
misclassify them as independent contractors”a category of contingent
workers excluded from many protections”when they should be classified
as employees. DOL investigators detect and address employee
misclassification primarily when responding to FLSA minimum wage and
overtime pay complaints. DOL investigators examine whether a worker is
an employee or an independent contractor to determine coverage under
FLSA. DOL relies heavily on complaints from workers to enforce FLSA,
but the FLSA workplace poster does not contain any information on
employment classification or provide a telephone number for individuals
to register complaints. Misclassification of employees may contribute
to an FLSA violation or may violate laws enforced by other agencies,
such as tax laws. DOL procedures require officials to share information
with other federal and state agencies whenever investigators find
possible violations of other laws. However, the district offices we
contacted vary in how often they forward misclassification as a
possible violation of other agencies‘ laws.
What GAO Recommends:
GAO recommends that DOL (1) provide additional contact information to
facilitate the reporting of possible misclassification complaints, and
(2) evaluate the extent to which misclassification cases found through
FLSA investigations are referred to other agencies and take action to
improve as needed. DOL generally agreed with both recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-656].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Robert E. Robertson at
(202) 512-7215 or robertsonr@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Contingent Workers Constitute a Relatively Constant Proportion of the
Workforce and Are Diverse:
A Smaller Proportion of Contingent Workers than Others Has Benefits or
Is Covered by Key Workforce Protection Laws:
DOL Detects and Addresses Employee Misclassification through
Investigations, but Offices We Studied Vary in How Often They Forward
Misclassification Cases to Other Federal and State Agencies:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Establishing the Employment Relationship of Workers:
Appendix III: Size and Characteristics of the Contingent Workforce:
Appendix IV: Key Laws Designed to Protect Workers:
Appendix V: Comments from the Department of Labor:
Appendix VI: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Key Federal and State Agencies That Can Be Affected by
Employee Misclassification:
Table 2: Contingent Workers and the Total Employed Workforce (February
1995, February 1999, February 2005):
Table 3: Workers with Annual Family Incomes below $20,000 (February
2005):
Table 4: Changes in the Size of the Contingent Workforce:
Table 5: Characteristics of Contingent Workers (February 2005):
Figures:
Figure 1: Categories of Workers That GAO Considered Contingent:
Figure 2: Composition of the Contingent Workforce (February 2005):
Figure 3: Workers with Health Insurance (February 2005):
Figure 4: Workers with Employer-Provided Pensions (February 2005):
Figure 5: Key Laws Designed to Protect Workers:
Abbreviations:
BLS: Bureau of Labor Statistics:
CPS: Current Population Survey:
DOL: Department of Labor:
EMPLEO: Employment Education and Outreach:
ERISA: Employee Retirement Income Security Act:
ESA: Employment Standards Administration:
ETA: Employment & Training Administration:
FLSA: Fair Labor Standards Act:
FOH: Field Operations Handbook:
IRS: Internal Revenue Service:
NLRA: National Labor Relations Act:
NLRB: National Labor Relations Board:
United States Government Accountability Office:
Washington, DC 20548:
July 11, 2006:
The Honorable Edward M. Kennedy:
Ranking Minority Member:
Committee on Health, Education, Labor, and Pensions:
United States Senate:
Dear Senator Kennedy:
Millions of workers in the U.S. economy participate in some form of
"contingent" employment, such as temporary or part-time work. While
definitions of the contingent workforce vary, broadly defined,
contingent workers are workers who do not have standard full-time
employment, that is, are not wage and salary workers working at least
35 hours a week in permanent jobs. Contingent work arrangements often
have the potential to provide flexibility for employers and workers.
However, such arrangements may also exclude some contingent workers
from receiving key worker benefits and protections such as the
guarantee of workers' rights to safe and healthful working conditions,
a minimum hourly wage and overtime pay, freedom from employment
discrimination, and unemployment insurance. The Department of Labor
(DOL) enforces a wide range of labor laws that provide protections to
workers, including the Fair Labor Standards Act (FLSA), which provides
minimum wage, overtime pay, and child labor protections. Other federal
and state agencies enforce laws that provide workers with additional
workforce benefits and protections.
In June 2000, we reported that contingent workers, as broadly defined,
constituted almost 30 percent of the workforce and that compared with
standard full-time workers, contingent workers lagged behind in terms
of income and benefits.[Footnote 1] We also reported that some workers
do not receive worker protections to which they are entitled because
employers misclassify them as independent contractors--a category of
workers that is excluded from many protections--when they should be
classified as employees. In its last comprehensive misclassification
estimate, the Internal Revenue Service (IRS) estimated that 15 percent
of employers misclassified 3.4 million workers as independent
contractors in 1984, resulting in an estimated tax loss of $1.6 billion
(or $2.72 billion in inflation-adjusted 2006 dollars[Footnote 2]) in
Social Security tax, unemployment tax, and income tax.
In this context, you asked us to update our work on contingent workers
and review employee misclassification issues. Specifically, you asked
us to examine (1) the size and nature of the contingent workforce, (2)
the benefits and workforce protections provided to contingent workers,
and (3) the actions that DOL takes to detect and address employee
misclassification.
To respond to your request, we analyzed data from the Bureau of Labor
Statistics' (BLS) Current Population Survey (CPS), which is used to
survey people about their work and workplace benefits, and a CPS
supplement developed to collect information on the contingent
workforce. We used this CPS contingent workforce supplement to produce
estimates of characteristics of contingent workers, their receipt of
health insurance, and their participation in pension programs. To
ensure reporting consistency, we used the same definition of contingent
workers that we used in our 2000 report. This definition included eight
categories of contingent workers: agency temporary workers (temps),
direct-hire temps, on-call workers, day laborers, contract company
workers, independent contractors, self-employed workers, and standard
part-time workers.[Footnote 3] We interviewed BLS officials and other
researchers about contingent worker issues. We also reviewed key
workforce protection laws to determine coverage of contingent workers.
To obtain information on DOL's efforts to detect and address employee
misclassification as part of FLSA enforcement, we reviewed DOL
documents and interviewed DOL officials from headquarters, 3 of 5
regional offices, and 9 of 51 district offices.[Footnote 4] We also
reviewed literature and interviewed researchers about employee
misclassification issues. We performed our work in accordance with
generally accepted government auditing standards between July 2005 and
June 2006. Appendix I provides detailed information on the scope and
methodology of our work.
Results in Brief:
Contingent workers constituted a relatively constant proportion of the
total workforce from 1995 through 2005 and had diverse characteristics.
While the population of the contingent workforce grew by an estimated 3
million workers during this time period, the proportion of contingent
workers in the total workforce remained relatively constant at about 31
percent.[Footnote 5] In 2005, there were about 42.6 million contingent
workers in the workforce. Across categories, contingent workers vary in
terms of their demographic characteristics. For example, on average,
contingent workers range in age from about 35 years for direct-hire
temps to about 48 years for self-employed workers. While about two-
thirds of standard part-time workers are female, females constitute
about one-third of contract company workers. Contingent workers are
employed in a wide range of industries and occupations, including the
services industry, construction, and retail trade.
A smaller proportion of contingent workers than of standard full-time
workers has health insurance or pension benefits, or is protected by
key workforce protection laws, including laws designed to ensure proper
pay and safe, healthful, and nondiscriminatory workplaces. While 72
percent of standard full-time workers received employer-provided health
insurance in 2005, the proportion of contingent workers who received
employer-provided health insurance ranged from 9 to 50 percent,
depending on the category of contingent worker. When other sources of
health insurance are taken into account, the proportional difference
between contingent and standard full-time workers decreases
substantially but is not eliminated. With regard to pension benefits,
76 percent of standard full-time workers reported working for an
employer who offered a pension, and 64 percent reported being included
in their employer's plan. In contrast, 17 to 56 percent of contingent
workers reported working for an employer who offered a pension, and 4
to 37 percent reported being included in their employer's plan.
DOL detects and addresses misclassification of employees as independent
contractors by investigating complaints, but does not always forward
misclassification cases to other federal and state agencies. DOL
investigators detect and address employee misclassification primarily
when responding to FLSA minimum wage and overtime pay complaints. DOL
investigators examine the employment relationship--whether a worker is
an employee or an independent contractor--to determine whether workers
are covered under FLSA. DOL relies heavily on complaints from workers
to enforce FLSA, but the FLSA workplace poster--a principal means of
communicating FLSA protections--does not contain any information on
employment relationship or provide a telephone number for individuals
to register complaints. While misclassification of an employee as an
independent contractor is not a violation of FLSA, it may contribute to
an FLSA violation if the employer does not pay the minimum wage or
overtime required by the act. In addition, employee misclassification
may contribute to a violation of laws enforced by other agencies, such
as tax laws. DOL procedures require officials to share information with
other federal and state agencies whenever investigators find possible
violations of other laws. However, the district offices we contacted
vary in how often they forward misclassification as a possible
violation of other agencies' laws.
This report contains recommendations that DOL (1) revise its FLSA
workplace poster to include additional contact information that would
facilitate the reporting of potential employee misclassification
complaints, and (2) evaluate the extent to which misclassification
cases identified through FLSA investigations are referred to the
appropriate federal or state agency, and take action to make
improvements as necessary. In commenting on our draft report, DOL
agreed with the first recommendation and agreed with the primary part
of the second recommendation, but disagreed with one part of this
recommendation. Regarding the second recommendation, DOL agreed with
the value of sharing potential employee misclassification with
appropriate federal and state programs, but did not agree with a part
of the draft recommendation that referral of cases should include
notifying the employer that the misclassification case has been
forwarded to the appropriate agency. After considering DOL's position
concerning this aspect of the draft recommendation, we deleted this
part from the final recommendation. DOL also provided technical
comments, which we incorporated in the report as appropriate. Our
summary evaluation of the agency's comments is on page 36. DOL's
comments are reproduced in appendix V.
Background:
The term "contingent work" can be defined in many ways to refer to a
variety of nonstandard work arrangements. Broadly defined, "contingent
work" refers to work arrangements that are not long-term, year-round,
full-time employment with a single employer. For example, an employer
may hire workers when there is an immediate and limited demand for
their services, without any offer of permanent or even long-term
employment. Temporary workers, independent contractors, and part-time
workers are examples of contingent workers. In 2000, we reported our
definition of contingent workers that we also used in this
report.[Footnote 6] Figure 1 shows this definition, which includes
eight categories of contingent workers.
Figure 1: Categories of Workers That GAO Considered Contingent:
[See PDF for image]
Source: GAO/HEHS-00-76.
[End of figure]
Research has shown that employers use contingent work arrangements for
a variety of reasons. Employers may hire contingent workers to
accommodate workload fluctuations, fill temporary absences, meet
employee's requests for part-time hours, screen workers for permanent
positions, and save on wage and benefit costs, among other
reasons.[Footnote 7] Previous analyses of data from the CPS Contingent
Work Supplement have indicated that workers also take temporary and
other contingent jobs for a variety of personal and economic reasons.
For example, workers in various types of contingent jobs indicated that
they (1) preferred a flexible schedule to accommodate their school,
family, or other obligations; (2) needed additional income; (3) could
not find a more permanent job; or (4) hoped the job would lead to
permanent employment.[Footnote 8] Studies using data from the BLS
National Longitudinal Survey of Youth show that events such as the
birth of a child or a change in marital status affect the likelihood of
entering different types of employment arrangements and prompt some
workers to enter contingent work arrangements.[Footnote 9]
Concerns arise when employers misclassify workers as independent
contractors, who are in a category of contingent workers excluded from
certain worker protections. Employee misclassification occurs when an
employer improperly classifies a worker as an independent contractor
when the worker should be classified as an employee. In 2000, we
reported that because most key workforce protection laws cover only
workers who are employees, independent contractors and certain other
contingent workers, such as self-employed workers, are, by definition,
not covered. (See app. IV for a more detailed description of these key
laws.)
Misclassification of employees can affect the administration of many
federal and state programs, such as payment of taxes and pension
benefits. For example, if employers misclassify workers as independent
contractors, then they may not be paying the payroll taxes required to
be paid for employees. At the federal level, misclassification can
reduce tax payments, Medicare payments, and Social Security payments.
At the state level, misclassification can affect payments into state
tax, workers' compensation, and unemployment insurance programs. Table
1 shows key federal and state agencies that can be affected by employee
misclassification issues.
Table 1: Key Federal and State Agencies That Can Be Affected by
Employee Misclassification:
Entity: U.S. Department of Labor;
Law: Fair Labor Standards Act;
Areas potentially affected by employee misclassification: Minimum wage,
overtime, and child labor provisions.
Entity: U.S. Department of Labor;
Law: Family and Medical Leave Act;
Areas potentially affected by employee misclassification: Job-protected
and unpaid leave.
Entity: U.S. Department of Labor;
Law: Occupational Safety and Health Act;
Areas potentially affected by employee misclassification: Safety and
health protections.
Entity: U.S. Department of Treasury-Internal Revenue Service;
Law: Federal tax law, including:; Federal Insurance Contributions Act;
Federal Unemployment Tax Act; Self-Employment Contributions Act;
Areas potentially affected by employee misclassification: Federal
income and employment taxes.
Entity: U.S. Department of Health and Human Services;
Law: Title XVIII of the Social Security Act (Medicare);
Areas potentially affected by employee misclassification: Medicare
benefit payments.
Entity: DOL/IRS/Pension Benefit Guaranty Corporation;
Law: Employee Retirement Income Security Act;
Areas potentially affected by employee misclassification: Pension,
health, and other employee benefit plans.
Entity: Equal Employment Opportunity Commission;
Law: Title VII of the Civil Rights Act;
Areas potentially affected by employee misclassification: Prohibitions
of employment discrimination based on race, color, religion, gender,
and national origin.
Entity: Equal Employment Opportunity Commission;
Law: Americans with Disabilities Act;
Areas potentially affected by employee misclassification: Prohibitions
of discrimination against individuals with disabilities.
Entity: Equal Employment Opportunity Commission;
Law: Age Discrimination in Employment Act;
Areas potentially affected by employee misclassification: Prohibitions
of employment discrimination against any individual 40 years of age or
older.
Entity: National Labor Relations Board;
Law: National Labor Relations Act;
Areas potentially affected by employee misclassification: The right to
organize and bargain collectively.
Entity: Social Security Administration;
Law: Social Security Act;
Areas potentially affected by employee misclassification: Retirement
and disability payments.
Entity: DOL/state agencies;
Law: Unemployment insurance law;
Areas potentially affected by employee misclassification: Unemployment
insurance benefit payments.
Entity: State agencies;
Law: State tax law;
Areas potentially affected by employee misclassification: State income
and employment taxes.
Law: State workers' compensation law;
Areas potentially affected by employee misclassification: Workers'
compensation benefit payments.
Source: GAO analysis of laws.
[End of table]
DOL may encounter employee misclassification while enforcing worker
protection laws. DOL's mission is to promote the welfare of job
seekers, workers, and retirees in the United States by improving their
working conditions, advancing their opportunities for profitable
employment, protecting their retirement and health care benefits,
helping employers find workers, strengthening free collective
bargaining, and tracking changes in employment, prices, and other
national economic measurements. In carrying out this mission, DOL
enforces a variety of worker protection laws, including those
guaranteeing workers' rights to safe and healthful working conditions,
a minimum hourly wage and overtime pay, freedom from employment
discrimination, and unemployment insurance.
In particular, DOL's Employment Standards Administration's (ESA) Wage
and Hour Division enforces FLSA. The Wage and Hour Division--with staff
located in 5 regional and 72 district, area, and field offices
throughout the country--conducts investigations of employers who have
$500,000 or more in annual sales volume.[Footnote 10] In addition, the
division conducts outreach efforts for employers and workers to ensure
compliance with FLSA. District directors oversee investigators, who
play a key role in carrying out FLSA enforcement. Investigators are
trained to investigate a wide variety of workplace conditions and
complaints and enforce a variety of labor laws in addition to
FLSA.[Footnote 11] Regional and district offices conduct outreach to
employers and workers through brochures, workplace posters,
presentations or training sessions for individuals or groups, and Web-
based information.
FLSA--which provides minimum wage and overtime pay protections--
requires that employers pay those employees covered by the act at least
the minimum wage and pay overtime wages when they work more than 40
hours a week.[Footnote 12] FLSA requires that an employer-employee
relationship exist for a worker to be covered by the act's provisions.
The act defines "employee" broadly as an individual employed by an
employer. The U.S. Supreme Court has identified certain factors to be
considered in determining whether a worker meets the FLSA definition of
employee. Appendix II contains more information on establishing the
employment relationship under FLSA.
Contingent Workers Constitute a Relatively Constant Proportion of the
Workforce and Are Diverse:
Contingent workers constituted a relatively constant proportion of the
total workforce from 1995 through 2005 and had diverse characteristics.
While the number of contingent workers grew by an estimated 3 million
during this time period, the contingent proportion of the total
workforce remained relatively constant. In 2005, there were about 42.6
million contingent workers in the workforce. The different categories
of contingent workers vary in terms of demographic characteristics,
industries, occupations, preferences for the type of job that they
currently hold, and incidence of low family income.[Footnote 13]
Appendix III contains detailed information on changes in the size of
the contingent workforce and characteristics of contingent workers.
Contingent Workers' Proportion of the Total Workforce Has Changed
Little over the Past Decade:
In 2005, an estimated 31 percent of the workforce could be considered
to maintain a contingent work arrangement.[Footnote 14] As shown in
table 2, while the number of contingent workers grew from 39.6 million
workers in 1995 to 42.6 million workers in 2005, contingent workers'
share of the total workforce remained relatively constant over this
time period.[Footnote 15]
Table 2: Contingent Workers and the Total Employed Workforce (February
1995, February 1999, February 2005):
Category of worker: Contract company workers;
February 1995: Estimated numbers of workers (in thousands): 652;
February 1995: Estimated percentage of the workforce: 0.5;
February 1999: 769;
February 1999: Estimated percentage of the workforce: 0.6;
February 2005: 813;
February 2005: Estimated percentage of the workforce: 0.6.
Category of worker: Agency temps;
February 1995: Estimated numbers of workers (in thousands): 1,181;
February 1995: Estimated percentage of the workforce: 1.0;
February 1999: 1,188;
February 1999: Estimated percentage of the workforce: 0.9;
February 2005: 1,217;
February 2005: Estimated percentage of the workforce: 0.9.
Category of worker: On-call workers/day laborers;
February 1995: Estimated numbers of workers (in thousands): 2,014;
February 1995: Estimated percentage of the workforce: 1.6;
February 1999: 2,180;
February 1999: Estimated percentage of the workforce: 1.7;
February 2005: 2,736;
February 2005: Estimated percentage of the workforce: 2.0.
Category of worker: Direct-hire temps;
February 1995: Estimated numbers of workers (in thousands): 3,393;
February 1995: Estimated percentage of the workforce: 2.8;
February 1999: 3,227;
February 1999: Estimated percentage of the workforce: 2.5;
February 2005: 2,972;
February 2005: Estimated percentage of the workforce: 2.1.
Category of worker: Self-employed workers;
February 1995: Estimated numbers of workers (in thousands): 7,256;
February 1995: Estimated percentage of the workforce: 5.9;
February 1999: 6,280;
February 1999: Estimated percentage of the workforce: 4.8;
February 2005: 6,125;
February 2005: Estimated percentage of the workforce: 4.4.
Category of worker: Independent contractors;
February 1995: Estimated numbers of workers (in thousands): 8,309;
February 1995: Estimated percentage of the workforce: 6.7;
February 1999: 8,247;
February 1999: Estimated percentage of the workforce: 6.3;
February 2005: 10,342;
February 2005: Estimated percentage of the workforce: 7.4.
Category of worker: Standard part-time workers;
February 1995: Estimated numbers of workers (in thousands): 16,813;
February 1995: Estimated percentage of the workforce: 13.6;
February 1999: 17,380;
February 1999: Estimated percentage of the workforce: 13.2;
February 2005: 18,360;
February 2005: Estimated percentage of the workforce: 13.2.
Category of worker: Subtotal: contingent workers;
February 1995: Estimated numbers of workers (in thousands): 39,618;
February 1995: Estimated percentage of the workforce: 32.2[A];
February 1999: 39,271;
February 1999: Estimated percentage of the workforce: 29.9[A];
February 2005: 42,567;
February 2005: Estimated percentage of the workforce: 30.6.
Category of worker: Standard full-time workers;
February 1995: Estimated numbers of workers (in thousands): 83,589;
February 1995: Estimated percentage of the workforce: 67.8;
February 1999: 92,222;
February 1999: Estimated percentage of the workforce: 70.1;
February 2005: 96,385;
February 2005: Estimated percentage of the workforce: 69.4.
Category of worker: Total workforce;
February 1995: Estimated numbers of workers (in thousands): 123,207;
February 1995: Estimated percentage of the workforce: 100.0;
February 1999: 131,493;
February 1999: Estimated percentage of the workforce: 100.0;
February 2005: 138,952;
February 2005: Estimated percentage of the workforce: 100.0.
Source: GAO analysis of data from the CPS February 1995, 1999, and 2005
Contingent Work Supplements.
Note: We combined the on-call workers and day laborers categories
because the definitions and characteristics of these workers are
similar and the number of day laborers alone was not large enough to be
statistically significant.
[A] Percentages do not add up to subtotal because of rounding.
[End of table]
Contingent Workers Are a Diverse Group:
The categories of contingent workers differ considerably in terms of
their share of the contingent workforce. In 2005, standard part-time
workers constituted the largest category (43 percent) and contract
company workers constituted the smallest category (2 percent) of the
contingent workforce (see fig. 2).
Figure 2: Composition of the Contingent Workforce (February 2005):
[See PDF for image]
Source: GAO analysis of data from the CPS February 2005 Contingent Work
Supplement.
Note: Actual estimated percentages do not add to 100 percent because of
rounding.
Contingent workers exhibit a wide range of demographic characteristics.
For example, direct-hire temps (with a mean age of about 35
years[Footnote 16]) were, on average, the youngest contingent workers
in 2005, while self-employed workers (with a mean age of about 48
years[Footnote 17]) were the oldest. An estimated 68 percent of
standard part-time workers were female, while about 31 percent of
contract company workers were female.[Footnote 18] Self-employed
workers had the highest percentage (81 percent) of white/non-Hispanic
workers, while agency temps had the smallest percentage (50 percent) of
white/non-Hispanic workers. Standard part-time workers had the highest
percentage (21 percent) of workers with less than a high school degree,
while self-employed workers and independent contractors had the lowest
percentages (8 percent).
Contingent workers are employed in a wide range of industries and
occupations. Regarding industry, in 2005, the percentage of part-time
workers employed in retail trade (38 percent) was greater than in other
industries, the percentage of agency temps in business services (28
percent) was greater than in other industries, the percentage of direct-
hire temps in educational services (28 percent) was greater than in
other industries, and the percentage of independent contractors in
construction (22 percent) was greater than in other industries.
Regarding occupation, in 2005, the percentage of self-employed workers
in management (29 percent) was greater than in other occupations, the
percentage of agency temps in office and administrative support (25
percent) was greater than in other occupations, and the percentage of
contract company workers in construction and extraction (20 percent)
was greater than in other occupations.
The extent to which contingent workers express a preference for a
different type of employer or job also varies across the different
categories of contingent workers. For example, in 2005, 59 percent of
agency temps expressed a preference to work for a different type of
employer. Similarly, 48 percent of on-call workers/day laborers
indicated that they would prefer a job where they worked regularly
scheduled hours. In contrast, 9 percent of independent contractors and
8 percent of self-employed workers indicated that they would prefer to
work for someone else.
The proportion of contingent workers reporting low family incomes
varies considerably across the different categories of contingent
workers. As shown in table 3, while 16 percent of the overall
contingent worker population reported family incomes below $20,000 in
2005, the incidence of low family income ranged from 8 percent for self-
employed workers (the same percentage as for standard full-time
workers) to 28 percent among agency temps. The relatively high
incidence of low family income among some groups of contingent workers
may reflect a number of factors, including lower levels of educational
attainment, lower number of hours worked, or employment in low-wage
sectors of the economy.
Table 3: Workers with Annual Family Incomes below $20,000 (February
2005):
Category of worker: Self-employed workers;
Estimated number of workers with family incomes below $20,000: 382,484;
Estimated percentage of workers with family incomes below $20,000[A]:
8.
Category of worker: Contract company workers;
Estimated number of workers with family incomes below $20,000:
85,210[B];
Estimated percentage of workers with family incomes below $20,000[A]:
11.
Category of worker: Independent contractors;
Estimated number of workers with family incomes below $20,000: 952,924;
Estimated percentage of workers with family incomes below $20,000[A]:
11.
Category of worker: Direct-hire temps;
Estimated number of workers with family incomes below $20,000: 464,561;
Estimated percentage of workers with family incomes below $20,000[A]:
18.
Category of worker: Standard part-time workers;
Estimated number of workers with family incomes below $20,000:
2,963,389;
Estimated percentage of workers with family incomes below $20,000[A]:
19.
Category of worker: On-call workers/day laborers;
Estimated number of workers with family incomes below $20,000: 501,014;
Estimated percentage of workers with family incomes below $20,000[A]:
21.
Category of worker: Agency temps;
Estimated number of workers with family incomes below $20,000:
318,535[B];
Estimated percentage of workers with family incomes below $20,000[A]:
28.
Category of worker: Subtotal: contingent workers;
Estimated number of workers with family incomes below $20,000:
5,668,117;
Estimated percentage of workers with family incomes below $20,000[A]:
16.
Category of worker: Standard full-time workers;
Estimated number of workers with family incomes below $20,000:
6,902,861;
Estimated percentage of workers with family incomes below $20,000[A]:
8.
Category of worker: Total workforce;
Estimated number of workers with family incomes below $20,000:
12,570,978;
Estimated percentage of workers with family incomes below $20,000[A]:
11.
Source: GAO analysis of data from the CPS February 2005 Contingent Work
Supplement.
[A] The percentages in this table are based on valid responses only.
[B] The 95 percent confidence interval for agency temps and for
contract company workers are 318,535 +/-70,692, and 85,210 +/-36,585,
respectively. The 95 percent confidence intervals for totals for other
categories of contingent workers are within +/-20 percent of the
estimate itself.
[End of table]
A Smaller Proportion of Contingent Workers than Others Has Benefits or
Is Covered by Key Workforce Protection Laws:
A smaller proportion of contingent workers than of standard full-time
workers has health insurance or pension benefits, or receives
protections offered by key workforce protection laws, including ones
designed to ensure proper pay and safe, healthy, and nondiscriminatory
workplaces. A smaller proportion of contingent workers than of standard
full-time workers has employer-provided health insurance coverage. When
other sources of health insurance are taken into account, the
difference between contingent and standard full-time workers decreases,
but it remains the case that a smaller proportion of contingent workers
is insured. In addition, a smaller proportion of contingent workers
than of standard full-time workers has employers who offer pension
plans or is included in employer-provided plans. Finally, contingent
workers are less likely than standard full-time workers to receive
protections offered by key workforce protection laws. Some laws contain
requirements that exclude certain categories of contingent workers or
contain certain time-in-service requirements that make it difficult for
them to be covered. In addition, in cases where contingent workers have
more than one employer, it is difficult to determine which employer is
responsible for providing workers with workforce protections. Appendix
IV contains a detailed description of the key workforce protection
laws.
A Smaller Proportion of Contingent Workers than Others Receives Health
Insurance:
The proportion of contingent workers receiving health insurance is
smaller than the proportion of standard full-time workers receiving
health insurance. Overall, an estimated 13 percent of contingent
workers received health insurance through their employer in 2005,
compared to 72 percent of standard full-time workers. As shown in
figure 3, the share of contingent workers receiving employer-provided
health insurance ranged from 9 percent for agency temps to 50 percent
for contract company workers.[Footnote 19]
Figure 3: Workers with Health Insurance (February 2005):
[See PDF for image]
Source: GAO analysis of data from the CPS February 2005 Contingent Work
Supplement.
[A] Most workers in these categories do not have an employer and were
excluded in our analysis of employer-provided health insurance.
[B] For this figure, the population of contingent workers is defined as
all those respondents who gave a valid response to the question "Do you
receive health insurance from any source?" The percentages reported
above are based on this population.
[End of figure]
Although the proportion of contingent workers who received health
insurance increased significantly when other sources of health
insurance were taken into account, a smaller proportion of contingent
workers than of standard full-time workers received health insurance
from any source. Overall, about 73 percent of contingent workers
received health insurance through any source in 2005, compared to 87
percent of standard full-time workers. The share of contingent workers
who received health insurance through any source ranged from 41 percent
among agency temps to 81 percent among contract company workers. As
might be expected, a smaller proportion of workers with low family
incomes received health insurance than of workers of all income
levels.[Footnote 20] Overall, the highest percentage of contingent
workers who had health insurance through a source other than their
employer received it from their spouse's health insurance plan.
Contingent workers also reported receiving health insurance through
other family members' plans, plans offered through other or previous
jobs, direct purchase, or participating in Medicare or Medicaid
programs.
Workers may lack access to employer-provided health insurance for a
number of reasons, including electing not to participate in an
available plan, having an employer who does not offer a health
insurance plan, or being ineligible for their employer's plan if one is
offered. Just over half of workers--both contingent and standard full-
time--who lacked employer-provided health insurance coverage in 2005
worked for an employer who offered health insurance to some of its
employees. Not all workers reported being able to participate in their
employer's health insurance plan. An estimated 38 percent of the
contingent workers in this group reported that they could participate
in their employer's health insurance plan if they wanted to, compared
to 81 percent of standard full-time workers. Both contingent and
standard full-time workers reported several reasons for not
participating in health insurance plans offered by their employer,
including having coverage through another plan and the expense of their
employer's plan.
Some states and professional associations have developed health
insurance programs that help contingent workers access health care. For
example, Massachusetts recently passed legislation that will make
health insurance available to all residents of the state, including
contingent workers such as part-time workers, contractors, and self-
employed workers. This new law provides for health insurance premium
assistance for low-income workers as well as low-cost policies
available for purchase in the private market. In addition, Maine
recently created the Dirigo program, which provides low cost health
insurance to self-employed workers and workers without employer-
sponsored insurance. Similarly, New York's Healthy NY program helps
uninsured workers, including self-employed workers, who earn too much
to qualify for Medicaid access comprehensive health insurance.
Professional associations are also creating health plans to serve
contingent workers. For example, the HR Policy Association--a nonprofit
organization of senior human resources executives of Fortune 500
companies--recently brought major health insurers and large companies
together to create the National Health Access program. This program
provides a range of low-cost health plans to part-time, seasonal, and
temporary workers, as well as independent contractors at participating
companies who are ineligible for the companies' traditional health
plans. While these public and private initiatives are relatively new
and long-term outcomes have yet to be determined, the programs have
succeeded in expanding health insurance options to some contingent
workers.
A Smaller Proportion of Contingent Workers than Others Has Access to
Employer-Provided Pensions:
A smaller proportion of contingent workers than of standard full-time
workers has employers who offer pensions or is included in their
employer's pension plans.[Footnote 21] Overall, 38 percent of
contingent workers reported having employers who offered a pension in
2005, compared to 76 percent of standard full-time workers. Similarly,
while 17 percent of contingent workers reported being included in their
employers' pension plan, 64 percent of standard full-time workers
reported being included in such plans. As shown in figure 4, with the
exception of agency temps, 53 to 56 percent of the contingent workers
in other categories reported having employers who offered pension
plans.[Footnote 22] The percentage of contingent workers who were
included in employer-provided pension plans ranged from 4 percent for
agency temps to 37 percent for contract company workers.
Figure 4: Workers with Employer-Provided Pensions (February 2005):
[See PDF for image]
Source: GAO analysis of data from the CPS February 2005 Contingent Work
Supplement.
[A] Because workers in the self-employed category, and most workers in
the independent contractor category, do not have employers, they were
not included in this figure.
[B] For this figure, the population of contingent workers is defined as
all those respondents who gave a valid response to the question "Do you
work for an employer who offers a pension plan?" The percentages
reported above are based on this population.
[End of figure]
Among contingent workers with employers who offered pension plans, the
most frequently reported reasons for not being included in the plan
were those related to eligibility. For example, these workers reported
that they were not allowed to join the plan, they had not worked enough
hours or weeks, or they had not worked long enough to be eligible.
In addition to employer-provided pension plans, other types of tax
deferred retirement accounts (such as individual retirement accounts
and Keogh plans) may offer workers an opportunity to save for
retirement. A larger proportion of self-employed workers and
independent contractors than of other categories of contingent workers
reports having other types of tax deferred retirement
accounts.[Footnote 23] For example, 45 percent of self-employed workers
and 42 percent of independent contractors, compared to 16 percent of
standard full-time workers, reported having such accounts in 2005.
Contingent workers with low family incomes have less access to employer-
provided pension benefits than workers of all income levels. Overall,
29 percent of contingent workers with low family incomes reported
having employers who offered pension plans in 2005; 7 percent of
contingent workers with low family incomes reported being included in
such plans. Contingent workers with low family incomes commonly
reported that they were not included in their employer's pension plan
for reasons related to eligibility; for example, they were not allowed
to join the plan, they had not worked enough hours or weeks, or they
had not worked long enough to be eligible.
Some Categories of Contingent Workers Are Not Covered by Key Laws
Designed to Protect Workers:
Contingent workers who are employees are generally protected under key
laws designed to protect workers, but certain categories of contingent
workers--such as independent contractors and self-employed workers--
may be excluded from coverage under these laws. While most of the key
worker protection laws do not distinguish between types of employees
(i.e., contingent and standard full-time employees), some laws contain
requirements that exclude certain categories of contingent workers or
contain certain time-in-service requirements that make it difficult for
them to be covered.[Footnote 24] In addition, because these laws are
based on the traditional employer-employee relationship, they generally
cover only workers who are employees; independent contractors and self-
employed workers, therefore, are not covered. According to the 2005
Contingent Work Supplement, 10.3 million individuals are independent
contractors; these individuals would not be covered by these workforce
protection laws.
When employers have misclassified workers as independent contractors,
workers may need to go to court to establish their employee status and
their eligibility for protection under the laws. In addition, DOL may
bring a lawsuit on behalf of the worker or group of workers to require
that the employer provide the benefit or protection under the law. As
shown in figure 5, the key workforce protection laws cover a wide range
of issues.
Figure 5: Key Laws Designed to Protect Workers:
[See PDF for image]
Source: GAO analysis of laws.
[End of figure]
Certain categories of contingent workers, such as temporary, on-call,
and part-time workers, are not covered by some of the laws designed to
protect workers. For example, the Family and Medical Leave Act requires
workers to have worked for the same employer at least 12 months and a
minimum of 1,250 hours during the past 12 months to be covered. These
conditions decrease the likelihood that workers who are temporary, on-
call, or part-time will be covered. Although employers are not required
to provide pension or health care plans to their employees, when plans
are offered, the Employee Retirement Income Security Act (ERISA) has
rules that govern which employees must be included in the plans in
order to qualify for special tax treatment. For example, ERISA allows
employers to exclude workers who have worked less than 1,000 hours in a
12-month period from entering their pension plans. ERISA also allows
employers to exclude employees who have worked for the company less
than 3 years as well as part-time and seasonal employees from the count
of employees who must be included in self-insured medical plans and
group term life insurance plans. As a result, some temporary, on-call,
and part-time workers may not be included in their employers' benefit
plans. These exclusions are intended to strike a balance between
providing benefits to workers and not be unduly burdening employers.
For example, the exclusions in ERISA were enacted to recognize that it
may be impractical or too costly for employers to include all short-
term employees in their pension plans.
Some laws have exemptions for portions of certain industries or types
of employers that may disproportionately affect contingent workers. For
example, FLSA exempts all agricultural employers from the overtime pay
requirement and exempts agricultural employers who do not use more than
500 days of labor in any calendar quarter from the minimum wage
requirement. These exemptions affect some categories of contingent
workers more than standard full-time workers because a greater
proportion of these contingent workers is in the agriculture industry;
for example, an estimated 11 percent of self-employed workers, 2
percent of on-call workers and day laborers, 2 percent of independent
contractors, and 1 percent of direct-hire temporary workers are
employed in agriculture, compared with 1 percent of standard full-time
workers.
Similarly, the nature of contingent work makes it difficult for some
contingent workers to meet state eligibility requirements for
unemployment insurance. Temporary and part-time workers may not meet
the minimum earnings requirements, which vary by state, and these
workers may have difficulty meeting the rules governing job loss
because they have less flexibility when the circumstances of their jobs
change. For example, temporary workers who choose this type of work in
order to meet family obligations or to attend school might be more
likely to quit if their employer changed the job location or required
them to work different hours. Nevertheless, they would be ineligible
for unemployment insurance benefits in many states because they
voluntarily quit without good cause.[Footnote 25] In addition,
contingent workers can find it difficult to meet continuing eligibility
requirements.[Footnote 26]
Some contingent workers, such as temporary or contract workers, may
also find it difficult to meet the requirements of the National Labor
Relations Act (NLRA) for joining an existing bargaining unit or forming
a new bargaining unit. For example, under the act, temporary workers
wanting to join an existing collective bargaining unit at a work site
must first demonstrate that they have a "sufficient community of
interest" with the permanent workers in the bargaining unit.[Footnote
27] In 2004, the National Labor Relations Board (NLRB) overturned a
decision made in 2000, and required consent from both the user and
supplier employer before temporary employees could join an existing
bargaining unit.[Footnote 28] The 2004 decision made it more difficult
for temporary and leased employees to join unions and bargain
collectively. Contingent workers may also find it difficult to form new
collective bargaining units. For example, temporary workers and day
laborers may find it difficult to form bargaining units because they do
not work at one location or with one employer long enough to identify
with a particular group of workers and organize a union. In addition,
some worker advocacy groups maintain that contract company workers have
difficulty forming new collective bargaining units because employers
that use contract company workers may cancel contracts and contract
with other companies when workers attempt to unionize.
Incorrect Employment Relationship May Result in Lack of Worker
Protections:
In some cases it is difficult to determine which employer is
responsible for providing workers with workforce protections because
some contingent workers have more than one employer. In these cases,
employers may be (1) an intermediary, such as a temporary employment
agency, contract company, or leasing company; (2) the client firm that
obtains the workers through the intermediary; or (3) both the
intermediary and the client firm. Because it is often difficult in
these cases to determine which employer is liable to provide workers
with workforce protections, litigation may be necessary to resolve this
issue.
Even in cases where there is only one employer involved, employers
sometimes classify workers improperly, primarily by designating some
workers as independent contractors when, in fact, they are more
appropriately considered employees. Moreover, employers have economic
incentives to misclassify employees as independent contractors because
employers are not obligated to make certain financial expenditures for
independent contractors that they make for employees, such as paying
certain taxes (Social Security, Medicare, and unemployment taxes),
providing workers' compensation insurance, paying minimum wage and
overtime wages, or including independent contractors in employee
benefit plans.
In addition, the tests used to determine whether a worker is an
independent contractor or an employee are complex, subjective, and
differ from law to law. For example, the NLRA, the Civil Rights Act,
FLSA, and ERISA each use a different definition of an employee and
various tests, or criteria, to distinguish independent contractors from
employees.[Footnote 29] (See app. II for more information on employment
relationship.)
DOL Detects and Addresses Employee Misclassification through
Investigations, but Offices We Studied Vary in How Often They Forward
Misclassification Cases to Other Federal and State Agencies:
DOL detects and addresses employee misclassification when enforcing the
FLSA minimum wage and overtime pay provisions. As part of its FLSA
investigation process, DOL examines the employment relationship--
whether a worker is an employee or an independent contractor--to
determine which workers are covered. Investigators use various methods
to test the employment relationship of workers, including interviewing
employers and workers, reviewing payroll and related documents, and
touring work sites. While misclassification alone is not an FLSA
violation, it may contribute to FLSA violations or violations of other
laws, such as tax violations. DOL's outreach efforts provide some
information to employers and workers on employee misclassification
issues. DOL procedures require officials to share information with
other federal and state agencies whenever investigators find possible
violations of other laws. However, the district offices that we
contacted vary in how often they forward misclassification cases as a
possible violation of other agencies' laws.
Investigators Determine Workers' Employment Relationship:
DOL relies on complaints as a primary way to identify potential
violations for investigation.[Footnote 30] All FLSA investigations of
minimum wage and overtime pay complaints begin with an examination of
workers' employment relationship because FLSA applies only to
employees, not to independent contractors. If investigators determine
that a worker is an employee and not an independent contractor, they
continue with their FLSA investigation to determine whether the
employer has provided the minimum wage and overtime pay required by the
act.
DOL's Field Operations Handbook (FOH) provides investigators with
statutory interpretations and investigation procedures regarding the
employment relationship required for FLSA to apply. It also describes
the Supreme Court factors and explains how to apply them to test
employment relationship. For example, the Supreme Court factors address
whether the worker uses his or her own tools or equipment and whether
the worker can decide which hours to work. Appendix II contains more
information on the employment relationship. According to DOL officials,
investigators rely on their professional judgment when applying the
Supreme Court factors. Investigators receive classroom training and on-
the-job mentoring on the Supreme Court factors and techniques for
applying the factors. In their training, they are taught to identify
all the relevant factors and make a full, balanced assessment of the
facts of each case.[Footnote 31]
Investigators may identify possible employee misclassification at
different points during the investigation. According to DOL officials,
misclassification issues may come up during the initial conference with
the employer or during an investigator's review of records to determine
whether an employer had classified workers as employees or independent
contractors. At the initial conference with the employer, investigators
ask employers about the nature of their work, annual dollar volume of
business, the number of workers, and how workers are paid, and they
request payment documents, such as payroll records, time cards, and W-
2 forms. While it is standard practice for investigators to review
payroll and other records related to wages and employment,
investigators do not necessarily review contracts or 1099 forms used to
pay independent contractors unless they have a reason to suspect
possible misclassification.
Investigators may have reason to suspect misclassification stemming
from the complaint that initiated the case or their knowledge of
potential misclassification in that industry. In these cases, the
investigator would ask employers about whether they contract any work
and how they classify their workers. For example, according to DOL
officials, if an investigator was conducting an investigation of a
large drywall employer, then the investigator would probably spend a
large amount of time pursuing independent contractor issues because
misclassification has been a problem in the past with construction
contractors subcontracting work to drywallers, roofers, electricians,
and carpenters. In other cases where the investigator has no knowledge
about potential misclassification, the employer's responses at the
initial conference may raise questions. For example, if the employer
had millions of dollars in annual business but only two employees, then
the investigator would likely ask further questions about the
employment relationship of any other workers. In addition, DOL
officials told us that investigators compare payroll records with the
work process identified by the employer to see if there are any gaps.
For example, investigators would need to follow up with employers who
describe work processes that required many workers but had no employees
listed on the payroll. Such a scenario could indicate that employers
had misclassified workers as independent contractors who were not
listed on the payroll.
Investigators may learn about employment relationship when interviewing
workers to verify the employer's payroll and time records or to
identify workers' duties in order to determine whether FLSA applies.
According to DOL officials, an investigator would not ask directly
whether the worker is an independent contractor or an employee;
instead, an investigator would ask questions to determine whether the
worker is an employee or an independent contractor. For example, an
investigator would ask whether workers set their own work hours or use
their own equipment on the job--indications that workers may be
independent contractors, not employees.
Investigators may obtain additional information on employment
relationship while touring an employer's establishment. During a tour,
investigators can compare their observations about employment
relationship in the work environment to the information from the
records and interviews with employers and workers. Specifically,
investigators can observe control issues, such as whether workers are
supervised and provided with supplies and equipment. For example, if an
apartment rental complex treats its maintenance workers as independent
contractors, then the investigator would observe who provides the
plumbing supplies and paint--the employer or the workers--to help
determine whether workers are independent contractors or employees.
Also, a tour can identify potential misclassification issues for an
investigator to follow up on. For example, if the payroll records show
that the employer has 10 employees but the investigator sees 15 workers
during the tour, then the investigator will conduct further interviews
and record review to determine whether these other 5 workers are
employees or independent contractors.
Because employee misclassification is not a violation of FLSA,
investigators are not required to discuss misclassification identified
during FLSA investigations with employers or to include it in their
investigation report. According to DOL officials, however, an
investigator may discuss misclassification with the employer during the
investigation and may note instances of misclassification in the
investigation report. In discussing a misclassification case with the
employer, the investigator would explain that the workers should be
classified as employees, not independent contractors, and that the
employer may be violating other laws administered by other agencies,
such as tax laws or workers' compensation laws. Specifically,
investigators would explain to the employer how they applied the
Supreme Court factors in determining that the workers were employees,
not independent contractors. DOL officials said that investigators
would provide employers with publications and fact sheets on employment
relationship if they identified misclassification during an
investigation. In addition, the investigators may mention employee
misclassification in their final investigation report that summarizes
the facts of the investigation. According to DOL officials, if the
investigators included misclassification in the case report, it would
be mentioned as an underlying reason for a minimum wage or overtime
violation. However, investigation reports do not always include the
reason for the violation.
Employee Misclassification, though Not an FLSA Violation, May
Contribute to FLSA or Other Violations:
Employee misclassification alone is not a violation of FLSA, but may
contribute to FSLA minimum wage and overtime pay violations or
violations of tax, workers' compensation, or unemployment insurance
laws.[Footnote 32] DOL investigations have identified FLSA violations
associated with employee misclassification. For example, one
misclassification case involved a valet parking company located in
Arizona that provided services to local restaurants, sports venues,
hotels, and theaters. In 2004, this company paid $66,947 in minimum
wage and overtime pay back wages to 262 employees who had been
misclassified as independent contractors. When reviewing the employment
relationship, the DOL investigator found that the services provided by
these workers were integral to the business, and that the employer had
imposed strict policies and procedures to follow and told them when
they would work, where they would work, what their pay rate would be,
and what uniforms they would wear. The investigator determined that the
workers were not required to use initiative, judgment, or foresight to
be successful as independent contractors; did not have any investment
in facilities or equipment; and were not operating to make a profit.
Another misclassification case involved a chicken-processing company
based in California that contracted out its deboning operations to a
subcontractor. In 2005, DOL investigators found that the subcontractor
had misclassified as independent contractors the employees he hired to
work at this deboning plant. The subcontractor violated FLSA when he
failed to meet payroll for 2 weeks, pay minimum wages and overtime pay,
and keep adequate payroll records. The subcontractor also illegally
deducted the cost of aprons, gloves, hair nets, and other required
equipment from workers' paychecks. When the subcontractor went
bankrupt, the contractor agreed to cover the back wages due--$40,000
owed to 59 workers--although the contractor was not legally required to
do so.
DOL officials told us that their investigators have encountered cases
where employers classified workers as independent contractors instead
of employees to avoid paying proper wages under federal and state wage
laws or to avoid providing benefits under other laws, such as workers'
compensation and unemployment insurance laws. For example, in 2004, a
joint DOL-State of California investigation found that a services
company located in California had misclassified employees and not paid
overtime in accordance with FLSA. The affected workers provided
janitorial services to a major department store chain located in
California, Arizona, Nevada, Texas, and New Mexico. According to DOL
officials, the company contracted out the janitorial work to
individuals who were not legitimate contractors in that, among other
things, they did not control the location or hours of work. These
"contractors" then hired others to do the janitorial work. As a result
of this arrangement, the services company avoided paying minimum wage,
overtime, and other benefits, such as workers' compensation. In
response to the investigation, the company agreed to pay $1.9 million
in back wages to 775 employees. Throughout the investigation, DOL
worked with the state to ensure compliance with state wage laws,
workers' compensation programs, and unemployment insurance programs.
DOL's Outreach Efforts Provide Some Information on Employee
Misclassification Issues:
As part of general FLSA outreach efforts to employers and workers, DOL
provides some information on establishing the employment relationship.
While these outreach efforts primarily focus on how to comply with
provisions of FLSA--minimum wage, overtime pay, and child labor--they
also include some information on the employment relationship.
Specifically, information on employment relationship issues is
available to employers and workers through brochures, pamphlets, fact
sheets, and Web-based information. According to DOL officials, outreach
efforts conducted specifically for industries likely to use independent
contractors may also address the topic of employee misclassification.
The DOL Web site contains several sources of information on the FLSA
employment relationship. DOL's Wage and Hour Division posts its
Employment Relationship under FLSA (WH Publication 1297) and fact
sheets that provide information on determining the employment
relationship in applying provisions of FLSA. For example, Fact Sheet
13: Employment Relationship under the Fair Labor Standards Act (FLSA)
outlines the Supreme Court's factors for determining an employment
relationship under FLSA and is available in several languages,
including Chinese, Korean, Spanish, Thai, and Vietnamese. It also
identifies common problems: (1) construction contractors hire so-called
independent contractors, who in reality should be considered employees
because they do not meet the Supreme Court tests for independence and
(2) individuals who work at home are often improperly considered
independent contractors. Another DOL Web site resource is Employment
Laws Assistance for Workers and Small Businesses (elaws) FLSA Advisor,
an interactive system that allows employers and workers to determine
whether a worker would be considered an employee or an independent
contractor. These Web site outreach sources contain contacts--such as
the Wage-Hour toll-free telephone line and links to district office
telephone numbers--to obtain additional information about employment
relationship issues.
Another form of outreach that DOL provides is its workplace poster.
FLSA regulations require that every employer that has employees subject
to the act's provisions post a notice explaining the act in a prominent
and accessible place at the work site.[Footnote 33] While DOL relies
heavily on complaints from workers to enforce FLSA, the FLSA workplace
poster does not provide a telephone number for workers or others to
call to register complaints. Instead, the poster directs inquiries for
additional information to the nearest Wage and Hour Division office
listed in the telephone directory under "United States Government,
Labor Department." Also, the FLSA workplace poster does not include any
information on the employment relationship. As a result, individuals
seeking to report possible employee misclassification complaints have
no easy method to do so.
DOL district offices conduct locally based general FLSA outreach
efforts for employer and worker groups that do not target employee
misclassification, but they provide some information on establishing
the employment relationship. DOL officials told us that they distribute
employment relationship publications and fact sheets to industries that
use independent contractors--such as the construction and garment
industries--and may be more likely to misclassify employees. According
to DOL officials, this outreach to industries using independent
contractors may also address the topic of employee misclassification.
Also, in DOL's Western Region, a recent outreach effort to educate
Hispanic employers and workers about general workplace rights and
responsibilities has identified cases of employee misclassification
from calls to a hotline. Specifically, the Employment Education and
Outreach (EMPLEO)--an alliance of federal and state agencies, Mexican
and Central American consulates, and private nonprofit groups--provides
a toll-free hotline staffed by Spanish-speaking volunteers, not
associated with the government, who forward calls to the appropriate
agency for response.
DOL Offices We Studied Vary in How Often They Forward Misclassification
Cases to Other Federal and State Agencies:
Employers' misclassification of workers as independent contractors may
in some circumstances violate tax, unemployment insurance, and workers'
compensation laws. According to the Field Operations Handbook, DOL
regional or district officials are required to share information with
other appropriate federal and state agencies whenever investigators
conducting FLSA investigations find instances of possible violations of
other laws. At the same time, however, the FOH cautions investigators
not to interpret laws outside their authority. We discussed whether DOL
forwards misclassification cases identified during an FLSA
investigation. The DOL officials we spoke to in 9 district offices
could not provide the number of misclassification cases they referred
to other agencies because they do not track this information. However,
their responses indicated that district offices vary in how often they
implement the procedures to refer cases to other agencies. Some of the
DOL district offices told us that they notified IRS and state agencies
when they found misclassification, while others told us that they had
little or no contact with other agencies regarding misclassification
issues. These district offices also reported that it was rare for them
to receive misclassification referrals from other federal or state
agencies.[Footnote 34]
DOL requires its regional or district officials to notify other
agencies about possible violations identified during DOL
investigations. The procedures state that investigators should note
conditions that appear to be possible violations of other federal or
state laws or regulations. They also state that for matters that are
not within the authority of the Wage and Hour Division, investigators
should confine their investigative activities to obvious conditions
that they observe, or are brought to their attention, to avoid any
impression that the Wage and Hour Division is overstepping its
investigation authority. Further, the procedures instruct investigators
not to interpret any law other than those administered by the Wage and
Hour Division. They also direct investigators to report to district
office management any possible violations of other laws or regulations.
The Wage and Hour Division provides a form (WH-124) for regional or
district office officials to use to notify other federal or state
agencies about possible violations of laws or regulations administered
by those agencies.
According to DOL officials, investigators do not have the authority or
the expertise to look for violations of other laws. DOL officials told
us that because investigators focus on identifying minimum wage,
overtime pay, and child labor violations during FLSA investigations,
checking for compliance with laws enforced by other agencies is not a
priority. DOL officials also noted that interagency collaboration on
employee misclassification referrals is difficult because different
laws have different tests of establishing the employment relationship.
The DOL district offices we contacted varied in how often they
implemented the procedures to refer possible violations, including
misclassification, to other federal or state agencies. According to the
DOL officials in these offices, in most cases, district offices are
responsible for contacting other agencies. While some districts told us
that they notified IRS and state agencies about misclassification
cases, other districts told us that they had no contact with states or
other federal agencies about misclassification issues. Some district
officials told us that they notified IRS when investigators found
instances of misclassification that appeared to involve tax law
violations, but rarely received any response from IRS after submitting
their referral.[Footnote 35] Other districts told us that they had
little contact with IRS regarding misclassification.[Footnote 36] For
example, one district official said his district generally does not
receive any feedback from IRS. He said that his district would have
more incentive to refer cases if IRS would inform the district when it
received DOL referrals and if the district knew that IRS would act on
the referrals.
Similarly, some DOL officials told us that their contact with state
agencies could include misclassification, while others said they had
little contact with states about these issues. For example, one
regional official cited coordination with the state agencies that are
responsible for employment tax and registration of contractors in the
construction industry. He said that this state agency imposes fines on
individuals who are not registered as contractors and that this
sometimes involves misclassification.[Footnote 37]
District officials in the offices we contacted said they rarely receive
referrals about misclassification from other federal or state agencies.
While one district official said that other state agencies in the
region refer some complaints that occasionally include
misclassification issues, most officials said their districts have not
received any misclassification referrals from IRS or other federal or
state agencies.
Conclusions:
Contingent workers constitute an important and diverse sector of the
U.S. workforce. Yet while contingent work arrangements offer
flexibility to both employers and workers, they also provide contingent
workers with fewer workforce protections than are available to other
workers. Contingent workers also received fewer benefits. Many
contingent workers may not be covered under employer-sponsored health
and benefit plans and may not be able to afford these benefits on their
own--a situation that could have long-term adverse consequences for
workers and government programs. To the extent that contingent workers
neither receive health or pension benefits nor qualify for unemployment
or workers' compensation, they may have to turn to needs-based
programs, such as Medicaid, to make ends meet. To the extent that this
occurs, costs formerly borne by employers may be shifted to federal and
state public assistance budgets. To help address the lack of health
insurance coverage, some state and professional associations have
developed programs that help contingent workers access health care.
Although these initiatives are relatively new and long-term outcomes
have yet to be determined, they may serve as promising practices for
the future.
DOL investigators identify instances of employee misclassification when
responding to minimum wage and overtime pay complaints. However,
because the FLSA workplace poster does not provide an easy method for
workers to report complaints, DOL may be missing opportunities to
address other instances of potential misclassification. Improving the
workplace poster would reinforce DOL's complaint-based strategy and
would help further protect the wages of employees who may be
misclassified.
While DOL investigators conducting FLSA investigations are required to
share information with other federal and state agencies whenever they
find instances of possible violations of other laws, DOL district
offices we studied varied in how often they forwarded misclassification
cases to other agencies. DOL does not know the extent to which district
offices refer misclassification cases to other agencies. DOL cautions
investigators not to interpret laws outside their authority, but
referring misclassification cases identified through FLSA
investigations would not require DOL to interpret other agencies' laws.
In addition, referring this information may assist other federal and
state agencies in addressing misclassification. Furthermore, when DOL
does not refer cases of misclassification, other agencies lose
opportunities to fulfill their fiduciary duties in conserving
government funds.
Recommendations for Executive Action:
To facilitate the reporting of FLSA complaints, we recommend that the
Secretary of Labor instruct the Wage and Hour Division to revise the
FLSA workplace poster to include national, regional, and district
office telephone numbers and a Web site address that complainants may
use to report alleged employee misclassification issues.
To facilitate addressing employee misclassification across federal and
state programs, we recommend that the Secretary of Labor instruct the
Wage and Hour Division to evaluate the extent to which
misclassification cases identified through FLSA investigations are
referred to the appropriate federal or state agency potentially
affected by employee misclassification, and take action to make
improvements as necessary. In addressing its referral mechanism, the
Wage and Hour Division officials should consider building upon efforts
by district offices currently engaging in referrals.
Agency Comments:
We provided a draft of this report to DOL for comment. Overall, DOL
agreed with the first recommendation and agreed with the primary part
of the second recommendation, but disagreed with one part of this
recommendation. DOL's written comments are reproduced in appendix V.
DOL's ESA agreed with the first recommendation on revising the
workplace poster to provide additional contact information to
facilitate the reporting of possible misclassification complaints. ESA
noted that the Wage and Hour Division is in the process of revising its
workplace poster to add the division's toll-free phone number.
Regarding the second recommendation, on referring misclassification
cases to other agencies, DOL agreed with the value of sharing potential
employee misclassification with appropriate federal and state programs.
The agency commented that the Wage and Hour Division will review its
processes to determine the appropriateness of referral of such cases to
other agencies. However, DOL did not agree with a part of the draft
recommendation that referral of cases should include notifying the
employer that the misclassification case has been forwarded to the
appropriate agency. The agency stated that such notification could
place the Wage and Hour Division staff in the untenable position of
having to defend a referral based upon interpretations of laws, which
the division staff has no expertise or authority to interpret or
enforce. After considering DOL's position concerning this aspect of the
draft recommendation, we deleted this part from the final
recommendation.
DOL's BLS also provided technical comments, which we incorporated in
the report as appropriate.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this report. At that time, we will send copies of this
report to the Secretary of Labor and other interested parties. We will
also make copies available to others upon request. In addition, the
report will be available at no charge on GAO's Web site at [Hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-7215 or robertsonr@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who have made major
contributions to this report are listed in appendix VI.
Sincerely,
Signed by:
Robert E. Robertson:
Director, Education, Workforce, and Income Security Issues:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of our study were to determine (1) the size and nature
of the contingent workforce, (2) the benefits and workforce protections
provided to contingent workers, and (3) the actions that the Department
of Labor (DOL) takes to detect and address employee misclassification.
To obtain information on the contingent workforce, we analyzed data
from the Bureau of Labor Statistics (BLS). Specifically, we reviewed
BLS's Current Population Survey (CPS), which is used to survey people
about their work and benefits, and a CPS supplement that BLS developed
to collect information on the contingent workforce. We defined
"contingent workers" according to the methodology used in our 2000
review of the contingent workforce, examining eight categories of
workers who could be considered contingent: agency temporary workers
(temps), direct-hire temps, on-call workers, day laborers, contract
company workers, independent contractors, self-employed workers, and
standard part-time workers.[Footnote 38] Standard full-time workers
were defined as all workers who do not fall into one of the contingent
worker categories. We reported descriptive statistics on the
characteristics of contingent workers and standard full-time workers,
their receipt of health insurance, and their participation in pension
plans. We did not conduct multivariate analyses to determine the causal
relationships explaining contingent workers' incidence of low family
income, receipt of health insurance, or participation in pension plans.
We also interviewed BLS officials and other researchers about
contingent worker issues.
To estimate the size of the contingent workforce and describe how it
has changed over the past decade, we used data collected in the CPS as
well as data collected in a special supplement to the survey--the
Contingent Work Supplement--in February 1995, 1999, and 2005.[Footnote
39] To describe the demographic characteristics of the contingent
workforce and the extent to which these workers have access to health
insurance and pension benefits, we used data collected in the CPS and
the Contingent Work Supplement in February 2005.
The CPS is designed and administered jointly by the Bureau of the
Census (Census) and BLS. It is the source of official government
statistics on employment and unemployment in the United States. The
survey is used to collect information on employment as well as such
demographic information as age, sex, race, marital status, educational
attainment, and family structure. The survey is based on a sample of
the civilian, noninstitutionalized population of the United States.
Using a multistage stratified sample design, about 60,000 households
are selected on the basis of area of residence to be representative of
the country as a whole and of individual states. A more complete
description of the survey, including sample design, estimation, and
other methodology, can be found in the CPS documentation prepared by
Census and BLS.[Footnote 40]
The Contingent Work Supplement was designed by BLS to obtain
information from workers on whether they hold contingent jobs, defined
by BLS as jobs that are expected to last only a limited period of
time.[Footnote 41] In addition, information is collected on several
alternative employment relationships, namely working as independent
contractors and on call, as well as working through temporary help
agencies or contract firms. All employed persons except unpaid family
members are included in the supplement. For persons holding more than
one job, the questions refer to the characteristics of their main job-
-the job in which they work the most hours. Similar surveys have been
conducted in February of 1995, 1997, 1999, 2001, and 2005. For a more
complete description of the supplement see the technical documentation
prepared by Census and BLS.[Footnote 42]
For our data reliability assessment, we reviewed agency documents on
the CPS and conducted electronic tests of the files. On the basis of
these reviews, we determined the required data elements from the CPS
were sufficiently reliable for our purposes.
Because the CPS is a probability sample of the population based on
random selection, the sample is only one of a large number of samples
that might have been drawn. Since each sample could have provided
different estimates, confidence in the precision of the particular
sample's results is expressed as a 95 percent confidence interval (for
example, +/-4 percentage points). This is the interval that would
contain the actual population value for 95 percent of the samples that
could have been drawn. As a result, we are 95 percent confident that
each of the confidence intervals in this report will include the true
values in the study population.
For the CPS estimates in this report, we use the CPS general variance
methodology to estimate the sampling error and report it as confidence
intervals. Percentage estimates based on the total workforce have 95
percent confidence intervals of within +/-1 percentage point of the
estimate itself, unless otherwise noted.[Footnote 43] Percentage
estimates for individual categories of contingent workers have
confidence intervals of within +/-10 percentage points of the estimate
unless otherwise noted. Estimates of totals exceeding 1 million workers
have 95 percent confidence intervals of within +/-10 percent of the
estimate itself unless otherwise noted. Estimates of totals exceeding
400,000 workers have 95 percent confidence intervals of within +/-20
percent of the estimate itself unless otherwise noted. The 95 percent
confidence intervals for other estimates are presented with the
estimates themselves in the body of the report. Consistent with CPS
documentation guidelines, we do not produce estimates from the February
2005 supplement for populations of less than 75,000.
In addition to the reported sampling errors, the practical difficulties
of conducting any survey may introduce other types of errors, commonly
referred to as nonsampling errors. For example, differences in how a
particular question is interpreted, the sources of information
available to respondents, or the types of people who do not respond can
introduce unwanted variability into the survey results. For the CPS,
data are often collected from one household member for all household
members. Nonsampling error could occur if a proxy responder was unable
to provide correct pension or insurance information for household
members not at home at the time of the interview.
Although we used data from the Contingent Work Supplement, we used a
definition of contingent worker different from the one used by BLS in
its analysis of the data. As in our 2000 review of contingent workers,
we did not restrict our definition to include only workers with
relatively short job tenure, but rather provided information on a range
of workers who could be considered contingent under different
definitions. Although we believe that it is useful to consider the
nature and size of the population of workers in jobs of limited
duration as well as their access to benefits, we also believe that it
is useful to provide information according to categories that are more
readily identifiable and mutually exclusive.[Footnote 44] The
categories we used to define the contingent workforce included direct-
hire temporaries (workers hired directly by employers to work in
temporary jobs), even though the Contingent Work Supplement did not
contain a question that directly asked for this information.[Footnote
45] We also combined on-call workers and day laborers because the
definitions and characteristics of these workers are similar and the
number of day laborers alone was not large enough to be statistically
significant. Information on leased workers was not included in our 2000
review of contingent workers because of a lack of data on these
workers. For this reason, leased workers were not included in the
definition of the contingent workforce used in this report.
To obtain information about the workforce protections that are offered
to contingent workers, we reviewed key workforce protection laws,
related court cases, and other studies on contingent workers.
To obtain information on DOL's actions to detect and address employee
misclassification as part of FLSA enforcement, we reviewed FLSA and its
corresponding regulations. We also reviewed DOL documents related to
FLSA, including policies and procedures on conducting investigations,
information on investigator training, and outreach efforts. We
interviewed officials from the Wage and Hour Division headquarters
office, 3 of the 5 regional offices, and 9 of the 51 district offices-
-3 district offices in each region. We selected a nonprobability sample
of district and regional offices to target offices located in large
cities and that provided geographic coverage across each region.
Because this was not a probability sample, we did not generalize the
results of our regional and district interviews to the regions and
districts we did not contact. In each office, we interviewed regional
and district management-level officials using a standard set of
questions in order to obtain information related to employee
misclassification as part of FLSA enforcement. The interview questions
asked about (1) the extent and source of employee misclassification,
(2) investigations related to employee misclassification, and (3)
training and outreach efforts related to employee misclassification. We
contacted the following offices:
* Northeast Regional Office:
* New York City District Office:
* Richmond District Office:
* Southern New Jersey District Office:
* Midwest Regional Office:
* Columbus District Office:
* Detroit District Office:
* Springfield District Office:
* Western Regional Office:
* East Los Angeles District Office:
* Phoenix District Office:
* Seattle District Office:
In addition, we reviewed literature and interviewed researchers from
four academic institutions and two nonprofit groups about employee
misclassification issues.
We performed our work in accordance with generally accepted government
auditing standards between July 2005 and June 2006.
[End of section]
Appendix II: Establishing the Employment Relationship of Workers:
Establishing the employment relationship of workers under the Fair
Labor Standards Act (FLSA) and the Employee Retirement Income Security
Act (ERISA) can be complex and may result in litigation. FLSA requires
that an employer-employee relationship exist for a worker to be covered
by the act's provisions.[Footnote 46] FLSA--which provides minimum wage
and overtime pay protections--requires that employers pay those
employees covered by the act at least the minimum wage and pay overtime
wages when they work more than 40 hours a week.[Footnote 47] The act
defines "employee" broadly as an individual employed by an employer.
The U.S. Supreme Court has identified certain factors that should be
considered in determining whether a worker is an employee or an
independent contractor under FLSA. In general, a worker who meets the
FLSA definition of employee is one who is economically dependent on the
business he or she serves. In contrast, an independent contractor is
one who is engaged in a business of his or her own. The test used to
determine whether an employment relationship exists for FLSA purposes
is referred to as the economic realities test.[Footnote 48] The court
has indicated that in applying this economic realities test under FLSA,
such determinations must consider the circumstances of the whole
activity and cannot be based on isolated factors or a single
characteristic. In enforcing FLSA, DOL uses the following factors:
* The extent to which the worker's services are an integral part of the
employer's business:
* Examples: Does the worker play an integral role in the business by
performing the primary type of work that the employer performs for
their customers? Does the worker perform a discrete job that is one
part of the business' overall process of production? Does the worker
supervise any of the company's employees?
* The permanency of the relationship:
* Example: How long has the worker worked for the same company?
* The amount of the worker's investment in facilities and equipment:
* Examples: Is the worker reimbursed for any purchases, materials, or
supplies? Does the worker use his or her own tools or equipment?
* The nature and degree of control by the employer:
* Examples: Who decides on what hours to be worked? Who is responsible
for quality control? Does the worker work for any other company(s)? Who
sets the pay rate?
* The worker's opportunities for profit and loss:
* Examples: Did the worker make any investments such as insurance or
bonding? Can the worker earn a profit by performing the job more
efficiently or exercising managerial skill or suffer a loss of capital
investment?
* The amount of initiative, judgment, or foresight in open market
competition with others required for the success of the claimed
independent contractor:
* Examples: Does the worker perform routine tasks requiring little
training? Does the worker advertise independently through the Yellow
Pages or business cards? Does the worker have a separate business site?
In some cases, employers misclassify workers as independent contractors
when they should be classified as employees. Under FLSA, the courts
have examined the issue of misclassification by applying the economic
realities test and making case-by-case determinations as to whether the
workers are employees and thereby covered by the act. For example, a
federal district court recently determined that over 500 delivery
workers for supermarket and drugstore chains had been misclassified as
independent contractors.[Footnote 49] The court ruled that the
companies that had hired these workers to make deliveries controlled
their placement and pay, provided them with delivery carts to rent and
uniforms to purchase, required little skill to perform the job, and
that the work performed constituted an integral part of the companies'
business. Therefore, the court ruled that they were employees and
entitled to overtime wages under FLSA. In another case, DOL brought
suit on behalf of cable installers against cable television providers
and cable installation companies for overtime compensation under FLSA.
In this case, the court ruled that the employer did not exhibit the
type of control needed to characterize the relationship as employee-
employer, that the workers provided their own van and other equipment,
and that the job required skilled labor. On the basis of these factors,
the court denied the claim and held that the cable installers were
properly classified as independent contractors and not entitled to
protection under FLSA.[Footnote 50]
The complexity of issues involving joint employment and
misclassification of employees is illustrated by litigation involving
the Microsoft Corporation. In the late 1980s, Microsoft began to hire
what the company classified as independent contractors to fill many of
its full-time employment vacancies. After the Internal Revenue Service
(IRS) determined that these workers were common law employees in 1989
and 1990, Microsoft terminated the employment relationship, set up an
employment agency, and converted these workers into temporary agency
employees. The workers sued Microsoft, and in 1996 the court ruled that
they were employees of the company rather than independent contractors
or temporary agency employees.[Footnote 51] The court then considered
whether or not the employees were eligible for the employer's saving
and stock purchase plan benefits under ERISA. The determining factor
was the language included in Microsoft's plan, which expressly made any
common law employee on the U.S. payroll eligible for benefits. However,
while the court determined that the workers were common law employees,
it directed Microsoft to determine what rights these workers, as common
law employees, had under Microsoft's ERISA plan. Eventually the parties
entered into a settlement agreement in which Microsoft paid $96.9
million.
Other cases have held that although workers may have been
misclassified, they still did not qualify for benefits under ERISA
plans because they did not qualify under the language of the plan that
excluded certain types of employees, such as temporary or leased
employees.[Footnote 52] Some employers amended their ERISA plans in
response to the Microsoft decision to limit participation to workers
that the employers classified as employees, whether or not the excluded
workers may later be determined to be employees by the IRS or courts.
The IRS has approved the use of such language in ERISA plans.[Footnote
53]
[End of section]
Appendix III: Size and Characteristics of the Contingent Workforce:
This table provides the following information on contingent workers:
growth rates (percentage changes) and changes in the share of the total
workforce (percentage point changes) for 1995-1999, 1999-2005, and 1995-
2005.
Table 4: Changes in the Size of the Contingent Workforce:
Category of worker: Agency temps;
Feb. 1995--Feb. 1999: Percentage change (number of workers): + 0.6*;
Feb. 1995--Feb. 1999: Percentage point change (percentage of total
workforce): - 0.1*;
Feb. 1999--Feb. 2005: Percentage change (number of workers): + 2.4*;
Feb. 1999--Feb. 2005: Percentage point change (percentage of total
workforce): 0.0*;
Feb. 1995--Feb. 2005: Percentage change (number of workers): + 3.0*;
Feb. 1995--Feb. 2005: Percentage point change (percentage of total
workforce): - 0.1*.
Category of worker: Direct-hire temps;
Feb. 1995--Feb. 1999: Percentage change (number of workers): - 4.9*;
Feb. 1995--Feb. 1999: Percentage point change (percentage of total
workforce): - 0.3;
Feb. 1999--Feb. 2005: Percentage change (number of workers): - 7.9*;
Feb. 1999--Feb. 2005: Percentage point change (percentage of total
workforce): - 0.4;
Feb. 1995--Feb. 2005: Percentage change (number of workers): - 12.4;
Feb. 1995--Feb. 2005: Percentage point change (percentage of total
workforce): - 0.7.
Category of worker: On-call workers/ day laborers;
Feb. 1995--Feb. 1999: Percentage change (number of workers): + 8.2*;
Feb. 1995--Feb. 1999: Percentage point change (percentage of total
workforce): + 0.1*;
Feb. 1999--Feb. 2005: Percentage change (number of workers): + 25.5;
Feb. 1999--Feb. 2005: Percentage point change (percentage of total
workforce): + 0.3;
Feb. 1995--Feb. 2005: Percentage change (number of workers): + 35.8;
Feb. 1995--Feb. 2005: Percentage point change (percentage of total
workforce): + 0.4.
Category of worker: Contract company workers;
Feb. 1995--Feb. 1999: Percentage change (number of workers): + 17.9*;
Feb. 1995--Feb. 1999: Percentage point change (percentage of total
workforce): + 0.1*;
Feb. 1999--Feb. 2005: Percentage change (number of workers): + 5.7*;
Feb. 1999--Feb. 2005: Percentage point change (percentage of total
workforce): 0.0*;
Feb. 1995--Feb. 2005: Percentage change (number of workers): + 24.7;
Feb. 1995--Feb. 2005: Percentage point change (percentage of total
workforce): + 0.1*.
Category of worker: Independent contractors;
Feb. 1995--Feb. 1999: Percentage change (number of workers): - 0.7*;
Feb. 1995--Feb. 1999: Percentage point change (percentage of total
workforce): - 0.4;
Feb. 1999--Feb. 2005: Percentage change (number of workers): + 25.4;
Feb. 1999--Feb. 2005: Percentage point change (percentage of total
workforce): + 1.1;
Feb. 1995--Feb. 2005: Percentage change (number of workers): + 24.5;
Feb. 1995--Feb. 2005: Percentage point change (percentage of total
workforce): + 0.7.
Category of worker: Self-employed workers;
Feb. 1995--Feb. 1999: Percentage change (number of workers): - 13.5;
Feb. 1995--Feb. 1999: Percentage point change (percentage of total
workforce): - 1.1;
Feb. 1999--Feb. 2005: Percentage change (number of workers): - 2.5*;
Feb. 1999--Feb. 2005: Percentage point change (percentage of total
workforce): - 0.4;
Feb. 1995--Feb. 2005: Percentage change (number of workers): - 15.6;
Feb. 1995--Feb. 2005: Percentage point change (percentage of total
workforce): - 1.5.
Category of worker: Standard part-time workers;
Feb. 1995--Feb. 1999: Percentage change (number of workers): + 3.4*;
Feb. 1995--Feb. 1999: Percentage point change (percentage of total
workforce): - 0.4*;
Feb. 1999--Feb. 2005: Percentage change (number of workers): + 5.6;
Feb. 1999--Feb. 2005: Percentage point change (percentage of total
workforce): 0.0*;
Feb. 1995--Feb. 2005: Percentage change (number of workers): + 9.2;
Feb. 1995--Feb. 2005: Percentage point change (percentage of total
workforce): - 0.4*.
Category of worker: Subtotal: contingent workers;
Feb. 1995--Feb. 1999: Percentage change (number of workers): - 0.9*;
Feb. 1995--Feb. 1999: Percentage point change (percentage of total
workforce): - 2.3;
Feb. 1999--Feb. 2005: Percentage change (number of workers): + 8.4;
Feb. 1999--Feb. 2005: Percentage point change (percentage of total
workforce): + 0.7;
Feb. 1995--Feb. 2005: Percentage change (number of workers): + 7.4;
Feb. 1995--Feb. 2005: Percentage point change (percentage of total
workforce): - 1.6.
Category of worker: Standard full-time workers;
Feb. 1995--Feb. 1999: Percentage change (number of workers): + 10.3;
Feb. 1995--Feb. 1999: Percentage point change (percentage of total
workforce): + 2.3;
Feb. 1999--Feb. 2005: Percentage change (number of workers): + 4.5;
Feb. 1999--Feb. 2005: Percentage point change (percentage of total
workforce): - 0.7;
Feb. 1995--Feb. 2005: Percentage change (number of workers): + 15.3;
Feb. 1995--Feb. 2005: Percentage point change (percentage of total
workforce): + 1.6.
Category of worker: Total workforce;
Feb. 1995--Feb. 1999: Percentage change (number of workers): + 6.7;
Feb. 1995--Feb. 1999: Percentage point change (percentage of total
workforce): ------;
Feb. 1999--Feb. 2005: Percentage change (number of workers): + 5.7;
Feb. 1999--Feb. 2005: Percentage point change (percentage of total
workforce): ------- ;
Feb. 1995--Feb. 2005: Percentage change (number of workers): + 12.8;
Feb. 1995--Feb. 2005: Percentage point change (percentage of total
workforce): -------.
Source: GAO analysis of data from the CPS February 2005 Contingent Work
Supplement.
Note: An asterisk (*) denotes that the change over this period was not
statistically significant for this category of worker at the 95 percent
confidence level.
[End of table]
Table 5: Characteristics of Contingent Workers (February 2005):
(Percentage unless indicated otherwise).
Age: 16-19 years;
Agency temps: 3;
Direct-hire temps: 11;
On-call workers and day laborers: 7;
Contract company workers: 1;
Independent contractors: 1;
Self-employed workers: 0;
Standard part-time workers: 20;
Standard full-time workers: 1.
Age: 20-24 years;
Agency temps: 17;
Direct-hire temps: 21;
On-call workers and day laborers: 15;
Contract company workers: 11;
Independent contractors: 3;
Self-employed workers: 1;
Standard part-time workers: 17;
Standard full-time workers: 8.
Age: 25-34 years;
Agency temps: 30;
Direct-hire temps: 25;
On-call workers and day laborers: 22;
Contract company workers: 25;
Independent contractors: 15;
Self-employed workers: 13;
Standard part-time workers: 15;
Standard full-time workers: 24.
Age: 35-54 years;
Agency temps: 37;
Direct-hire temps: 29;
On-call workers and day laborers: 39;
Contract company workers: 47;
Independent contractors: 54;
Self-employed workers: 55;
Standard part-time workers: 30;
Standard full-time workers: 52.
Age: 55-64 years;
Agency temps: 11;
Direct-hire temps: 9;
On-call workers and day laborers: 11;
Contract company workers: 14;
Independent contractors: 19;
Self-employed workers: 21;
Standard part-time workers: 10;
Standard full-time workers: 13.
Age: 65 and older;
Agency temps: 3;
Direct-hire temps: 5;
On-call workers and day laborers: 7;
Contract company workers: 2;
Independent contractors: 9;
Self-employed workers: 9;
Standard part-time workers: 8;
Standard full-time workers: 2.
Mean age (years);
Agency temps: 37.4;
Direct-hire temps: 35.2;
On-call workers and day laborers: 38.9;
Contract company workers: 40.3;
Independent contractors: 46.4;
Self-employed workers: 47.9;
Standard part-time workers: 36.2;
Standard full-time workers: 40.8.
Gender: Men;
Agency temps: 47;
Direct- hire temps: AGE: 49;
On-call workers and day laborers: 53;
Contract company workers: 69;
Independent contractors: 65;
Self-employed workers: 63;
Standard part-time workers: 32;
Standard full-time workers: 56.
Gender: Women;
Agency temps: 53;
Direct-hire temps: 51;
On-call workers and day laborers: 47;
Contract company workers: 31;
Independent contractors: 35;
Self-employed workers: 35;
Standard part-time workers: 37;
Standard full-time workers: 68.
Race: White, non-Hispanic;
Agency temps: 50;
Direct-hire temps: 63;
On-call workers and day laborers: 68;
Contract company workers: 62;
Independent contractors: 80;
Self-employed workers: 81;
Standard part-time workers: 76;
Standard full-time workers: 69.
Black, non-Hispanic;
Agency temps: 22;
Direct-hire temps: 9;
On-call workers and day laborers: 8;
Contract company workers: 15;
Independent contractors: 5;
Self-employed workers: 4;
Standard part-time workers: 9;
Standard full-time workers: 11.
Race: Hispanic;
Agency temps: 21;
Direct-hire temps: 18;
On-call workers and day laborers: 19;
Contract company workers: 16;
Independent contractors: 9;
Self-employed workers: 7;
Standard part-time workers: 11;
Standard full-time workers: 14.
Race: Other, non-Hispanic;
Agency temps: 8;
Direct-hire temps: 9;
On-call workers and day laborers: 5;
Contract company workers: 7;
Independent contractors: 5;
Self-employed workers: 9;
Standard part-time workers: 5;
Standard full-time workers: 6.
Education: Less than high school diploma;
Agency temps: 18;
Direct-hire temps: 15;
On-call workers and day laborers: 20;
Contract company workers: 17;
Independent contractors: 8;
Self-employed workers: 8;
Standard part-time workers: 21;
Standard full-time workers: 9.
Education: High school diploma, no college;
Agency temps: 29;
Direct-hire temps: 21;
On-call workers and day laborers: 29;
Contract company workers: 22;
Independent contractors: 28;
Self-employed workers: 28;
Standard part-time workers: 27;
Standard full-time workers: 31.
Education: Some college;
Agency temps: 32;
Direct-hire temps: 33;
On-call workers and day laborers: 28;
Contract company workers: 29;
Independent contractors: 29;
Self-employed workers: 26;
Standard part-time workers: 35;
Standard full-time workers: 28.
Education: College degree;
Agency temps: 19;
Direct-hire temps: 17;
On-call workers and day laborers: 16;
Contract company workers: 18;
Independent contractors: 22;
Self-employed workers: 23;
Standard part-time workers: 12;
Standard full-time workers: 21.
Education: Graduate school;
Agency temps: 2;
Direct-hire temps: 14;
On-call workers and day laborers: 6;
Contract company workers: 14;
Independent contractors: 13;
Self-employed workers: 15;
Standard part-time workers: 5;
Standard full-time workers: 11.
Division: New England;
Agency temps: 4;
Direct-hire temps: 6;
On-call workers and day laborers: 3;
Contract company workers: 3;
Independent contractors: 5;
Self-employed workers: 3;
Standard part-time workers: 6;
Standard full-time workers: 5.
Division: Middle Atlantic;
Agency temps: 8;
Direct-hire temps: 11;
On-call workers and day laborers: 12;
Contract company workers: 15;
Independent contractors: 11;
Self-employed workers: 12;
Standard part-time workers: 15;
Standard full-time workers: 14.
Division: E. North Central;
Agency temps: 17;
Direct-hire temps: 14;
On-call workers and day laborers: 14;
Contract company workers: 10;
Independent contractors: 15;
Self-employed workers: 15;
Standard part-time workers: 19;
Standard full-time workers: 15.
Division: W. North Central;
Agency temps: 5;
Direct-hire temps: 8;
On-call workers and day laborers: 7;
Contract company workers: 4;
Independent contractors: 8;
Self-employed workers: 9;
Standard part-time workers: 8;
Standard full-time workers: 7.
Division: South Atlantic;
Agency temps: 19;
Direct-hire temps: 17;
On-call workers and day laborers: 15;
Contract company workers: 30;
Independent contractors: 19;
Self-employed workers: 17;
Standard part-time workers: 16;
Standard full-time workers: 19.
Division: E. South Central;
Agency temps: 7;
Direct-hire temps: 6;
On-call workers and day laborers: 7;
Contract company workers: 4;
Independent contractors: 5;
Self-employed workers: 5;
(Percentage unless indicated otherwise): Standard part-time workers: 5;
Standard full-time workers: 6.
Division: W. South Central;
Agency temps: 12;
Direct-hire temps: 9;
On-call workers and day laborers: 13;
Contract company workers: 15;
Independent contractors: 10;
Self-employed workers: 11;
Standard part-time workers: 9;
Standard full-time workers: 11.
Division: Mountain;
Agency temps: 6;
Direct-hire temps: 6;
On-call workers and day laborers: 7;
Contract company workers: 6;
Independent contractors: 9;
Self-employed workers: 8;
Standard part-time workers: 6;
Standard full-time workers: 7.
Division: Pacific;
Agency temps: 22;
Direct-hire temps: 23;
On-call workers and day laborers: 23;
Contract company workers: 13;
Independent contractors: 19;
Self-employed workers: 19;
Standard part-time workers: 15;
Standard full-time workers: 15.
Industry: Business services;
Agency Temps: 28;
Direct-hire temps: 4;
On-call workers and day laborers: 5;
Contract company workers: 5;
Independent contractors: 7;
Self-employed workers: 5;
Standard part-time workers: 4;
Standard full-time workers: 3.
Industry: Auto and repair services;
Agency Temps: 0;
Direct-hire temps: 1;
On-call workers and day laborers: 1;
Contract company workers: 0;
Independent contractors: 4;
Self-employed workers: 4;
Standard part-time workers: 1;
Standard full-time workers: 1.
Industry: Personal services: Private Households;
Agency Temps: 2;
Direct-hire temps: 2;
On-call workers and day laborers: 1;
Contract company workers: 0;
Independent contractors: 2;
Self-employed workers: 0;
Standard part-time workers: 1;
Standard full-time workers: 0.
Industry: Personal services: Other personal services;
Agency Temps: 1;
Direct-hire temps: 1;
On-call workers and day laborers: 2;
Contract company workers: 2;
Independent contractors: 5;
Self-employed workers: 6;
Standard part-time workers: 3;
Standard full-time workers: 2.
Industry: Arts, entertainment, recreation services;
Agency Temps: 0;
Direct-hire temps: 3;
On-call workers and day laborers: 4;
Contract company workers: 1;
Independent contractors: 3;
Self-employed workers: 2;
Standard part-time workers: 3;
Standard full-time workers: 1.
Professional services: Hospitals;
Agency Temps: 2;
Direct-hire temps: 4;
On-call workers and day laborers: 6;
Contract company workers: 3;
Independent contractors: 0;
Self-employed workers: 0;
Standard part-time workers: 5;
Standard full-time workers: 5.
Professional services: Health services;
Agency Temps: 7;
Direct-hire temps: 3;
On-call workers and day laborers: 6;
Contract company workers: 5;
Independent contractors: 3;
Self-employed workers: 7;
Standard part-time workers: 7;
Standard full-time workers: 5.
Professional services: Educational services;
Agency Temps: 1;
Direct-hire temps: 28;
On-call workers and day laborers: 18;
Contract company workers: 8;
Independent contractors: 2;
Self-employed workers: 2;
Standard part-time workers: 10;
Standard full-time workers: 10.
Professional services: Social services;
Agency Temps: 1;
Direct-hire temps: 2;
On-call workers and day laborers: 2;
Contract company workers: 0;
Independent contractors: 3;
Self-employed workers: 4;
Standard part-time workers: 4;
Standard full-time workers: 2.
Professional services: Other professional services;
Agency Temps: 5;
Direct-hire temps: 9;
On-call workers and day laborers: 4;
Contract company workers: 5;
Independent contractors: 15;
Self-employed workers: 8;
Standard part-time workers: 6;
Standard full-time workers: 7.
Professional services: Agriculture;
Agency Temps: 0;
Direct-hire temps: 1;
On-call workers and day laborers: 2;
Contract company workers: 0;
Independent contractors: 2;
Self-employed workers: 11;
Standard part-time workers: 0;
Standard full-time workers: 1.
Professional services: Mining;
Agency Temps: 0;
Direct-hire temps: 0;
On-call workers and day laborers: 1;
Contract company workers: 0;
Independent contractors: 0;
Self-employed workers: 0;
Standard part-time workers: 1;
Standard full-time workers: 0.
Professional services: Construction;
Agency Temps: 3;
Direct-hire temps: 9;
On-call workers and day laborers: 14;
Contract company workers: 17;
Independent contractors: 22;
Self-employed workers: 6;
Standard part-time workers: 3;
Standard full-time workers: 7.
Professional services: Durable goods manufacturing;
Agency Temps: 17;
Direct-hire temps: 3;
On-call workers and day laborers: 2;
Contract company workers: 8;
Independent contractors: 2;
Self-employed workers: 4;
Standard part-time workers: 1;
Standard full-time workers: 10.
Professional services: Nondurable goods manufacturing;
Agency Temps: 12;
Direct-hire temps: 2;
On-call workers and day laborers: 3;
Contract company workers: 6;
Independent contractors: 1;
Self-employed workers: 3;
Standard part-time workers: 2;
Standard full-time workers: 5.
Professional services: Transportation and warehousing;
Agency Temps: 2;
Direct-hire temps: 2;
On-call workers and day laborers: 7;
Contract company workers: 2;
Independent contractors: 4;
Self-employed workers: 3;
Standard part-time workers: 3;
Standard full-time workers: 5.
Professional services: Communications, information, Internet;
Agency Temps: 2;
Direct-hire temps: 2;
On-call workers and day laborers: 2;
Contract company workers: 4;
Independent contractors: 2;
Self-employed workers: 1;
Standard part-time workers: 2;
Standard full-time workers: 3.
Professional services: Utilities and sanitation;
Agency Temps: 1;
Direct-hire temps: 1;
On-call workers and day laborers: 1;
Contract company workers: 2;
Independent contractors: 0;
Self-employed workers: 0;
Standard part-time workers: 0;
Standard full-time workers: 1.
Wholesale trade;
Agency Temps: 6;
Direct-hire temps: 2;
On-call workers and day laborers: 2;
Contract company workers: 3;
Independent contractors: 2;
Self-employed workers: 5;
Standard part-time workers: 1;
Standard full-time workers: 4.
Retail trade: Other retail trade;
Agency Temps: 2;
Direct-hire temps: 6;
On-call workers and day laborers: 6;
Contract company workers: 3;
Independent contractors: 2;
Self-employed workers: 5;
Standard part-time workers: 1;
Standard full-time workers: 4.
Retail trade: Eating and drinking establishments;
Agency Temps: 1;
Direct-hire temps: 5;
On-call workers and day laborers: 5;
Contract company workers: 2;
Independent contractors: 1;
Self-employed workers: 4;
Standard part-time workers: 16;
Standard full-time workers: 4.
Retail trade: Banking and other finance;
Agency Temps: 2;
Direct-hire temps: 1;
On-call workers and day laborers: 1;
Contract company workers: 2;
Independent contractors: 2;
Self-employed workers: 2;
Standard part-time workers: 2;
Standard full-time workers: 4.
Retail trade: Insurance and real estate;
Agency Temps: 2;
Direct-hire temps: 2;
On-call workers and day laborers: 2;
Contract company workers: 5;
Independent contractors: 8;
Self-employed workers: 7;
Standard part-time workers: 2;
Standard full-time workers: 4.
Retail Trade: Forestry and fisheries;
Agency Temps: 0;
Direct-hire temps: 0;
On-call workers and day laborers: 0;
Contract company workers: 0;
Independent contractors: 1;
Self-employed workers: 1;
Standard part-time workers: 0;
Standard full-time workers: 0.
Retail trade: Justice, public order, and safety;
Agency Temps: 0;
Direct-hire temps: 1;
On-call workers and day laborers: 3;
Contract company workers: 2;
Independent contractors: 0;
Self-employed workers: 0;
Standard part-time workers: 0;
Standard full-time workers: 3.
Retail trade: Admin of human resource programs;
Agency Temps: 1;
Direct-hire temps: 1;
On-call workers and day laborers: 0;
Contract company workers: 3;
Independent contractors: 0;
Self-employed workers: 0;
Standard part-time workers: 0;
Standard full-time workers: 1.
Retail trade: National security, international affairs;
Agency Temps: 0;
Direct-hire temps: 1;
On-call workers and day laborers: 0;
Contract company workers: 6;
Independent contractors: 0;
Self-employed workers: 0;
Standard part-time workers: 0;
Standard full-time workers: 1.
Retail trade: Other public administration;
Agency Temps: 2;
Direct-hire temps: 2;
On-call workers and day laborers: 2;
Contract company workers: 7;
Independent contractors: 0;
Self-employed workers: 0;
Standard part-time workers: 0;
Standard full-time workers: 2.
Occupation: Management;
Agency temps: 2;
Direct-hire temps: 5;
On-call workers and day laborers: 3;
Contract company workers: 4;
Independent contractors: 16;
Self-employed workers: 29;
Standard part-time workers: 3;
Standard full-time workers: 10.
Occupation: Business and financial operations;
Agency temps: 6;
Direct- hire temps: 3;
On-call workers and day laborers: 2;
Contract company workers: 6;
Independent contractors: 6;
Self-employed workers: 2;
Standard part-time workers: 2;
Standard full-time workers: 5.
Occupation: Computer and mathematical science;
Agency temps: 3;
Direct- hire temps: 2;
On-call workers and day laborers: 1;
Contract company workers: 13;
Independent contractors: 2;
Self-employed workers: 1;
Standard part-time workers: 1;
Standard full-time workers: 3.
Occupation: Architecture and engineering;
Agency temps: 2;
Direct-hire temps: 1;
On-call workers and day laborers: 1;
Contract company workers: 6;
Independent contractors: 2;
Self-employed workers: 0;
Standard part-time workers: 1;
Standard full-time workers: 2.
Occupation: Life, physical, and social science;
Agency temps: 1;
Direct-hire temps: 2;
On-call workers and day laborers: 0;
Contract company workers: 1;
Independent contractors: 1;
Self-employed workers: 1;
Standard part-time workers: 0;
Standard full-time workers: 1.
Occupation: Community and social service;
Agency temps: 0;
Direct-hire temps: 2;
On-call workers and day laborers: 1;
Contract company workers: 1;
Independent contractors: 0;
Self-employed workers: 0;
Standard part-time workers: 1;
Standard full-time workers: 2.
Occupation: Legal;
Agency temps: 0;
Direct-hire temps: 1;
On-call workers and day laborers: 0;
Contract company workers: 0;
Independent contractors: 2;
Self-employed workers: 3;
Standard part-time workers: 0;
Standard full-time workers: 1.
Occupation: Education, training, and library;
Agency temps: 2;
Direct- hire temps: 17;
On-call workers and day laborers: 14;
Contract company workers: 2;
Independent contractors: 2;
Self-employed workers: 1;
Standard part-time workers: 7;
Standard full-time workers: 6.
Occupation: Arts, design, entertainment, sports, media;
Agency temps: 1;
Direct-hire temps: 4;
On-call workers and day laborers: 4;
Contract company workers: 3;
Independent contractors: 7;
Self-employed workers: 3;
Standard part-time workers: 2;
Standard full-time workers: 1.
Occupation: Health care practitioner and technical;
Agency temps: 3;
Direct-hire temps: 3;
On-call workers and day laborers: 7;
Contract company workers: 2;
Independent contractors: 3;
Self-employed workers: 6;
Standard part-time workers: 6;
Standard full-time workers: 5.
Occupation: Health care support;
Agency temps: 5;
Direct-hire temps: 2;
On-call workers and day laborers: 3;
Contract company workers: 3;
Independent contractors: 1;
Self-employed workers: 0;
Standard part-time workers: 4;
Standard full-time workers: 2.
Occupation: Protective service;
Agency temps: 0;
Direct-hire temps: 1;
On-call workers and day laborers: 3;
Contract company workers: 12;
Independent contractors: 0;
Self-employed workers: 0;
Standard part-time workers: 1;
Standard full-time workers: 3.
Occupation: Food preparation and serving;
Agency temps: 1;
Direct-hire temps: 5;
On-call workers and day laborers: 6;
Contract company workers: 3;
Independent contractors: 0;
Self-employed workers: 1;
Standard part-time workers: 16;
Standard full-time workers: 4.
Occupation: Building, grounds cleaning, and maintenance;
Agency temps: 5;
Direct-hire temps: 3;
On-call workers and day laborers: 6;
Contract company workers: 7;
Independent contractors: 5;
Self-employed workers: 3;
Standard part-time workers: 4;
Standard full-time workers: 3.
Occupation: Personal care and service;
Agency temps: 4;
Direct-hire temps: 6;
On-call workers and day laborers: 3;
Contract company workers: 1;
Independent contractors: 7;
Self-employed workers: 8;
Standard part-time workers: 5;
Standard full-time workers: 2.
Occupation: Sales and related occupations;
Agency temps: 2;
Direct-hire temps: 6;
On-call workers and day laborers: 5;
Contract company workers: 2;
Independent contractors: 17;
Self-employed workers: 21;
Standard part-time workers: 18;
Standard full-time workers: 10.
Occupation: Office and administrative support;
Agency temps: 25;
Direct-hire temps: 15;
On-call workers and day laborers: 9;
Contract company workers: 5;
Independent contractors: 3;
Self-employed workers: 5;
Standard part-time workers: 18;
Standard full-time workers: 15.
Occupation: Farming, fishing, and forestry;
Agency temps: 1;
Direct- hire temps: 2;
On-call workers and day laborers: 2;
Contract company workers: 0;
Independent contractors: 1;
Self-employed workers: 0;
Standard part-time workers: 0;
Standard full-time workers: 1.
Occupation: Construction and extraction;
Agency temps: 4;
Direct-hire temps: 7;
On-call workers and day laborers: 15;
Contract company workers: 20;
Independent contractors: 15;
Self-employed workers: 4;
Standard part-time workers: 2;
Standard full-time workers: 6.
Occupation: Installation, maintenance, and repair;
Agency temps: 3;
Direct-hire temps: 4;
On-call workers and day laborers: 4;
Contract company workers: 2;
Independent contractors: 4;
Self-employed workers: 3;
Standard part-time workers: 1;
Standard full-time workers: 4.
Occupation: Production;
Agency temps: 17;
Direct-hire temps: 4;
On-call workers and day laborers: 3;
Contract company workers: 2;
Independent contractors: 2;
Self-employed workers: 4;
Standard part-time workers: 3;
Standard full-time workers: 8.
Occupation: Transportation and material moving;
Agency temps: 13;
Direct-hire temps: 5;
On-call workers and day laborers: 10;
Contract company workers: 3;
Independent contractors: 4;
Self-employed workers: 3;
Standard part-time workers: 6;
Standard full-time workers: 7.
Source: GAO analysis of data from the CPS February 2005 Contingent Work
Supplement.
[End of table]
[End of section]
Appendix IV Key Laws Designed to Protect Workers:
This appendix provides a more detailed description of the key laws
designed for workers' protection and their applicability to members of
the contingent workforce. By definition, these laws apply only to
employees--independent contractors and self-employed workers are not
covered. However, no definitive test exists to distinguish whether a
worker is an employee or an independent contractor. In determining
whether an employment relationship exists under federal statutes,
courts have developed several criteria. These criteria have been
classified as the economic realities test, the common law test, and a
combination of the two sometimes referred to as a hybrid test.
The economic realities test looks to whether the worker is economically
dependent upon the principal or is in business for himself. The test is
not precise, leaving determinations to be made on a case-by-case basis.
The test consists of a number of factors, such as the degree of control
exercised by the employing party over the worker, the worker's
opportunity for profit or loss, the worker's capital investment in the
business, the degree of skill required for the job, and whether the
worker is an integral part of the business.
The traditional common law test examines the employing party's right to
control how the work is performed. To determine whether the employing
party has this right, courts may consider the degree of skill required
to perform the work, who supplies the tools and equipment needed to
perform the work, and the length of time the worker has been working
for the employing party.
When the tests are combined in some type of hybrid, a court typically
weighs the common law factors and some additional factors related to
the worker's economic situation, such as how the work relationship may
be terminated, whether the worker receives leave and retirement
benefits, and whether the hiring party pays Social Security taxes.
Each of the laws is discussed in more detail below, including the tests
used under each to determine whether a worker is an employee or an
independent contractor.
Family and Medical Leave Act of 1993 (29 U.S.C. 2601):
The Family and Medical Leave Act of 1993 provides various protections
for employees who need time off from their jobs because of medical
problems or the birth or adoption of a child. The act requires
employers to allow employees to take up to 12 weeks of unpaid leave for
medical reasons related to the employee or a family member or to care
for a newborn or newly adopted child without reduction of pay or
benefits when he or she returns to work. It also requires employers to
maintain the same health care coverage for employees while they are on
leave that was provided when they were actively employed. To be
eligible for this coverage, employees must have been employed for 12
months by an employer that employs 50 or more employees who work 20 or
more calendar weeks in a year and must have worked at least 1,250 hours
during the past 12 months.
To determine whether a worker is a covered employee under the law, the
courts have applied the economic realities test.
Employee Retirement Income Security Act (29 U.S.C. 1001):
The Employee Retirement Income Security Act establishes uniform
standards for employee pension and welfare benefit plans, including
minimum participation, accrual, and vesting requirements; fiduciary
responsibilities; and reporting and disclosure requirements. The act
does not require employers to provide pension or welfare benefits to
employees; it applies to any employer or employee organization engaged
in commerce or any industry affecting commerce that maintains a covered
employee benefit plan.
Contingent workers are covered by the act only if the employer allows
them to participate in a pension or welfare benefit plan. Which
employees are included in a plan depends on how the plan documents are
drafted and interpreted. If an employer wishes to exclude some or all
types of contingent workers from participating in a plan, the employer
must clearly define the excluded groups of workers, and that definition
must be properly applied. Otherwise, contingent workers whom the
employer intended to exclude may be covered.
To determine whether a worker is a covered employee under the law, the
courts have applied the common law test.
Fair Labor Standards Act (29 U.S.C. 201):
The Fair Labor Standards Act establishes minimum wage, overtime, and
child labor standards for employees. The act covers all employees of
employers engaged in commerce or the production of goods that meet a
dollar-volume-of-business requirement. The act also covers all
employees engaged in commerce or the production of goods for commerce;
all employees engaged in domestic service covered by the law; all
employees of a hospital, residential care institution, or school; and
all federal, state, and local government employees.
To determine whether a worker is a covered employee under the law, the
courts have applied the economic realities test.
National Labor Relations Act (29 U.S.C. 151):
The National Labor Relations Act guarantees the right of employees to
organize and bargain collectively. The act applies to all employers and
employees in their relationships with labor organizations whose
activities affect interstate commerce. The act does not differentiate
by firm size.
The coverage issue regarding temporary workers is whether they have a
right to join the same bargaining units as permanent employees with
whom they work. Generally, agency temps who work at one site on a
fairly regular basis over a sufficient period of time can join the
existing collective bargaining unit of permanent employees if the
agency (or agencies, if more than one is involved) and the employer
that hired the workers from the agency consent to this arrangement.
However, temporary workers often do not work at one work site long
enough to have an interest in joining a union.
To determine whether a worker is a covered employee under the law, the
courts have applied the common law test.
Unemployment Insurance:
The unemployment insurance system is a joint federal-state system
funded by both federal and state payroll taxes. It was established by
the Social Security Act of 1935 and was intended to provide temporary
relief through partial wage replacement for workers who lose jobs for
economic reasons, such as layoffs, and to help stabilize the economy
during recessions. The system pays benefits to workers who become
unemployed and meet state-established eligibility rules. To determine
whether a worker is a covered employee under the law, most states use a
different type of test than is used for other laws. This test is called
the ABC test: workers are considered employees unless (a) they are free
from direction and control over performance of the work; (b) the
service is performed either outside the usual course of the business
for which it is performed or is performed outside of all places of
business of the enterprise for which it is performed; and (c) the
individual is customarily engaged in an independent trade, occupation,
profession, or business.
Workers' Compensation:
State and federal workers' compensation programs provide benefits for
wage loss and medical care to injured workers and, in some cases, their
families. At the same time, employers' liabilities are limited strictly
to workers' compensation payments. Benefits paid depend on the nature
and extent of the injuries and the ability of injured workers to
continue working. For employees whose injuries are not serious, the
only benefits received are of a medical nature. Employees with more
serious injuries or illnesses may also be entitled to wage-loss
benefits; vocational rehabilitation benefits; and schedule payments for
the permanent loss, or loss of use of, parts or functions of the body.
In addition, survivors of an employee may receive death benefits if the
employee's death resulted from a job-related injury or illness. To
determine whether a worker is a covered employee under the law, most
states use the common law test.
Occupational Safety and Health Act (29 U.S.C. 651):
The Occupational Safety and Health Act requires employers to maintain a
safe and healthful workplace and provides employees with certain rights
and responsibilities. Courts use either the economic realities test or
the common law test to determine whether someone is an employee under
the act. According to the law, the party responsible for ensuring
safety is the employer that is in direct control of the workplace and
the actions of those who work there, including contingent workers such
as agency temps and contract company workers who are supplied by
another party. Thus, if an accident occurs at the workplace, the
employer that created the hazard, not the temporary help firm or
contract company, is responsible.
Title VII of the Civil Rights Act (42 U.S.C. 2000e), the Americans with
Disabilities Act (42 U.S.C. 12101), and the Age Discrimination in
Employment Act (29 U.S.C. 621):
Title VII of the Civil Rights Act, the Americans with Disabilities Act,
and the Age Discrimination in Employment Act protect all employees and
job applicants from various forms of discrimination, such as
discrimination based on race, national origin, gender, disability, or
age. The Civil Rights Act and the Americans with Disabilities Act apply
to employers that have 15 or more employees for each of 20 or more
calendar weeks in a year. The Age Discrimination in Employment Act
applies to employers that have 20 or more employees for each working
day in each of 20 or more calendar weeks.
Further, each of these laws explicitly covers temporary employment
agencies. Title VII of the Civil Rights Act explicitly prohibits
employment agencies from discriminating on the basis of race, color,
religion, gender, or national origin in classifying or referring people
for employment. The Americans with Disabilities Act explicitly includes
employment agencies in the definition of entities covered by the law.
The Age Discrimination in Employment Act explicitly prohibits
employment agencies from discriminating on the basis of a person's age
(if over 40) in classifying or referring a person for employment.
To determine whether a worker is a covered employee under federal
antidiscrimination statutes, the courts have used all three tests--the
common law test, the economic realities test, and the hybrid test.
Independent contractors receive some protection from discrimination.
Under a provision of the Civil Rights Act that protects contractual
rights, independent contractors are protected against racial
discrimination in both the termination of a contract and the creation
of a hostile work environment. In joint employment situations, one
employer may be liable for the discriminatory acts of the other
employer if the employer that is being held liable controls some
substantial aspect of the employee's compensation or terms and
conditions of employment.
Consolidated Omnibus Budget Reconciliation Act (29 U.S.C. 1161):
Continuation of group health plan coverage is generally required under
this act for employees who otherwise would lose coverage as a result of
certain events, such as being laid off by their employers. Individuals
may continue coverage under their former employers' group health plans
at their own expense. Depending on the qualifying event, the duration
of required coverage ranges from 18 to 36 months. In general, when a
covered employee experiences termination or reduction in hours of
employment, the continued coverage of the employee and the employee's
spouse and dependents must continue for 18 months. The act applies to
all group health plans, except those maintained by employers with fewer
than 20 employees. Workers who were considered employees under the
group health plans are also employees for purposes of this act.
Health Insurance Portability and Accountability Act of 1996 (Pub. L.
No. 104-191):
This act guarantees the availability and renewability of health
insurance coverage for certain individuals. It limits, and in most
cases eliminates, the waiting time before a plan covers a preexisting
condition for group health plan participants and beneficiaries who move
from one job to another and from employment to unemployment. The act
also creates federal standards for insurers, health maintenance
organizations, and employer plans, including employers who self-insure.
The act does not require employers to offer health insurance to its
employees or, if they offer health insurance, to cover part-time,
seasonal, or temporary employees. The act increases the tax deduction
for health insurance for self-employed workers, including independent
contractors, to 100 percent of premiums and provides new tax incentives
to encourage individuals and employers to purchase long-term-care
insurance.
[End of section]
Appendix V: Comments from the Department of Labor:
U.S. Department of Labor:
Assistant Secretary for Employment Standards:
Washington, D.C. 20210:
Jun 14 2006:
Mr. Robert E. Robertson:
Director, Education, Workforce, and Income Security Issues:
United States Government Accountability Office:
Washington, D.C. 20548:
Dear Mr. Robertson:
Thank you for the opportunity to comment on the draft report entitled
"Employment Arrangement: Improved Outreach Could Help Ensure Proper
Worker Classification " (GAO-06-655) (Job Code 130460).
The report contains two recommendations to address employee
misclassification. Our comments follow a restatement of each
recommendation.
Recommendation 1:
To facilitate the reporting of FLSA complaints, we recommend that the
Secretary of Labor instruct the Wage and Hour Division to revise the
workplace poster to include national, regional and district office
phone numbers and a Web site address that complainants may use to
report alleged employee misclassification issues.
Response:
The WHD is in the process of revising its workplace poster to add the
WHO's toll-free number, 1-866-4US-WAGE (1-866-487-9243). Calls to the
number are handled by call center staff who screen information, provide
general guidance to employees and refer complainants to the appropriate
WHD office. The call center currently has Spanish-speaking customer
service representatives and an interpreter service that supports 150
languages. The WHD will also add the agency's web site address to the
poster, which can be used to report alleged violations, including those
that may be related to employee misclassification issues.
Recommendation 2:
To facilitate addressing employee misclassification across federal and
state programs, we recommend that the Secretary of Labor instruct the
Wage and Hour Division to evaluate the extent to which
misclassification cases identified through FLSA investigations are
referred to the appropriate federal or state agency potentially
affected by employee misclassification, and take action to make
improvements as necessary. Referral of cases should include notifying
the employer that the misclassification case has been forwarded to the
appropriate agency. In addressing its referral mechanism, the Wage and
Hour Division officials should consider building upon efforts by
district offices currently engaged in referrals.
Response:
The WHD agrees with the value of sharing potential employee
misclassification with appropriate federal and state programs. However,
automatic referrals to multiple agencies that may make little or no use
of the information provided may not be an efficient use of federal
resources.
The WHD will review its internal processes to determine the extent and
appropriateness of referring employee misclassification cases to other
federal or state agencies. In evaluating the effectiveness of the
current referral mechanism, WHD will consider building upon efforts by
district offices currently engaged in referrals.
However, WHD does not agree with the recommendation that employers be
notified when the WHD refers potential misclassification cases
involving laws not enforced by the WHD to another agency. Such
notification could place WHD staff in the untenable position of having
to defend a referral based upon interpretations of laws, which WHD has
no expertise or authority to interpret or enforce. As GAO notes, WHD
investigators are specifically cautioned to "not interpret laws outside
their authority." Further, there is a strong possibility that the
receiving agency will not react to the referral (which is correctly
stated in the GAO report).
We appreciate the opportunity to provide comments in advance of the
publication of the final report.
Sincerely,
Signed by:
Victoria A. Lipnic:
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Robert E. Robertson, (202) 512-7215 or robertsonr@gao.gov.
Staff Acknowledgments:
In addition to the contact named above, Brett S. Fallavollita, Linda L.
Siegel, Janice L. Peterson, and Jason R. Campbell contributed
significantly to all aspects of this report. Daniel A. Schwimer
reviewed the coverage of contingent workers under laws designed to
protect workers; Richard P. Burkard provided legal support;
Paula J. Bonin, Evan B. Gilman, Mark F. Ramage, and Joan K.
Vogelassisted in analyzing the BLS data; Thomas D. Short assisted with
IRS issues; and Jonathan S. McMurray assisted in report development.
[End of section]
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Pension Plans: Characteristics of Persons in the Labor Force without
Pension Coverage. GAO/HEHS-00-131. Washington, D.C.: August 22, 2000.
Contingent Workers: Incomes and Benefits Lag Behind Those of Rest of
Workforce. GAO/HEHS-00-76. Washington, D.C.: June 30, 2000.
Fair Labor Standards Act: White-Collar Exemptions Need Adjustments for
Today's Work Place. GAO/T-HEHS-00-105. Washington, D.C.: May 3, 2000.
Fair Labor Standards Act: White Collar Exemptions in the Modern Work
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Employment-Based Health Insurance: Medium and Large Employers Can
Purchase Coverage, but Some Workers Are Not Eligible. GAO/HEHS-98-184.
Washington, D.C.: July 27, 1998.
Private Health Insurance: Continued Erosion of Coverage Linked to Cost
Pressures. GAO/HEHS-97-122. Washington, D.C.: July 24, 1997.
Tax Administration: Issues in Classifying Workers as Employees or
Independent Contractors. GAO/T-GGD-96-130. Washington, D.C.: June 20,
1996.
Tax Administration: Issues Involving Worker Classification. GAO/T-GGD-
95-224. Washington, D.C.: August 2, 1995.
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Tax Administration: Improving Independent Contractor Compliance with
Tax Laws. T-GGD-94-194. Washington, D.C.: August 4, 1994.
Tax Administration: Approaches for Improving Independent Contractor
Compliance. GGD-92-108. Washington, D.C.: July 23, 1992.
Workers at Risk: Increased Numbers in Contingent Employment Lack
Insurance, Other Benefits. GAO/HRD-91-56. Washington, D.C.: March 8,
1991.
Tax Administration: Information Returns Can Be Used to Identify
Employers Who Misclassify Workers. GAO/GGD-89-107. Washington, D.C.:
September 25, 1989.
FOOTNOTES
[1] GAO, Contingent Workers: Incomes and Benefits Lag Behind Those of
Rest of Workforce, GAO/HEHS-00-76 (Washington, D.C.: June 30, 2000).
[2] The $2.72 billion is intended to be an estimate of the magnitude of
tax loss due to misclassification in 2006 dollars--not an updated
estimate. The actual tax loss due to misclassification in 2006 may be
higher or lower based on the tax rates, the level of independent
contractors used in various sectors of the economy, and the types and
levels of misclassification observed in 2006.
[3] Standard part-time workers are individuals who regularly work less
than 35 hours a week for a particular employer and are wage and salary
workers.
[4] We selected the regional and district offices using a
nonprobability sample--a sample in which some items in the population
have no chance, or an unknown chance, of being selected. Results from
nonprobability samples cannot be used to make inferences about a
population;
thus, the information we obtained cannot be generalized to all regional
and district offices.
[5] Estimates of the size and characteristics of the contingent
workforce are based on CPS sample data and are subject to sampling
error. For example, the 95 percent confidence intervals for percentages
of the total workforce are within +/-1 percentage point of the estimate
itself. Appendix I contains information on the magnitude of sampling
error for the CPS estimates contained in this report.
[6] Although we used data from the Contingent Work Supplement, we used
a definition of contingent worker different from the one used by BLS in
its analysis of the data. As in our 2000 review of contingent workers,
we did not restrict our definition to include only workers with
relatively short job tenure, but rather provided information on a range
of workers who could be considered contingent under different
definitions. Although we believe that it is useful to consider the
nature and size of the population of workers in jobs of limited
duration as well as their access to benefits, we also believe that it
is useful to provide information according to categories that are more
readily identifiable and mutually exclusive. Appendix I provides a more
detailed description of GAO's definition of contingent workers.
[7] See Susan N. Houseman, "Temporary, Part-Time, and Contract
Employment in the United States: A Report on the W.E. Upjohn
Institute's Employer Survey on Flexible Staffing Policies" (November
1996, revised June 1997), and Susan N. Houseman, "Why Employers Use
Flexible Staffing Arrangements: Evidence from an Establishment Survey,"
Industrial and Labor Relations Review (October 2001):149-170.
[8] See Sharon R. Cohany, "Workers in Alternative Employment
Arrangements," Monthly Labor Review (October 1996): 31-45;
Anne E. Polivka, "Into Contingent and Alternative Employment: By
Choice?," Monthly Labor Review (October 1996):55-74;
Sharon R. Cohany, "Workers in Alternative Employment Arrangements: a
Second Look," Monthly Labor Review (November 1998):3-21;
Steven Hipple, "Contingent Work: Results from the Second Survey,"
Monthly Labor Review (November 1998):22-35;
Steven Hipple, "Contingent Work in the Late-1990s," Monthly Labor
Review (March 2001):3-27.
[9] Donna S. Rothstein, "Entry Into and Consequences of Nonstandard
Work Arrangements," Monthly Labor Review (October 1996): 76-83, and
Barbara A. Wiens-Tuers and Elizabeth T. Hill, "How Did We Get Here from
There? Movement into Temporary Employment," Journal of Economic Issues
(June 2002):303-311.
[10] In addition, other types of employers--such as hospitals and
schools--are covered by FLSA regardless of their annual sales volume.
[11] Complaints are a key component of DOL enforcement efforts under
many federal labor laws. DOL enforcement generally relies on two types
of information to identify potential violations: (1) complaints from
individuals who believe they may have suffered a violation and (2)
analysis of data to specifically target problematic industries or work
sites.
[12] FLSA also includes record-keeping and child labor provisions.
[13] GAO's 2000 review of contingent workers used $15,000 as the family
income threshold for defining "low family income." This income level
was selected because the BLS reports family income in $5,000
increments, and $15,000 was the income level closest to and below the
1999 federal poverty threshold for a family of four ($17,028). We
selected $20,000 as the family income threshold for "low family income"
for this report because it was the income level closest to the current
federal poverty level. The 2004 federal poverty threshold for a family
of four (the most current information published by the Bureau of the
Census at the time this project was designed) was $19,307.
[14] Workforce characteristics are estimated from the CPS February 2005
Contingent Work Supplement. Percentage estimates based on the total
workforce have 95 percent confidence intervals of within +/-1
percentage point of the estimate itself. Appendix I contains additional
information and confidence interval ranges for other CPS estimates
presented in this report.
[15] Similarly, the proportions of the various categories of contingent
workers changed little over this time period (see app. III).
[16] The 95 percent confidence interval is from 34.1 to 36.3 years old.
[17] The 95 percent confidence interval is from 47.2 to 48.5 years old.
[18] The percentage estimates for individual categories of contingent
workers have 95 percent confidence intervals of within +/-10 percentage
points, unless noted. See appendix I for additional information.
[19] Workers who do not have employers are not included in the
questions on employer provided health insurance in the CPS February
2005 Contingent Work Supplement. All workers in the "self-employed"
category, and most workers in the "independent contractor" category, do
not have employers and were excluded from our analysis of employer-
provided health insurance.
[20] In 2005, 49 percent of contingent workers with low family incomes
received health insurance from any source, as compared to 73 percent of
contingent workers of all income levels. Similarly, 9 percent of
contingent workers with low family incomes received employer-provided
health insurance, as compared to 13 percent of contingent workers of
all income levels.
[21] The CPS classifications regarding access to employer-provided
pensions are sometimes described in different terms. For example, the
CPS questionnaire asks workers if their employer "offers" a pension
plan to any of its employees, and if they are "included" in this plan.
In a past GAO report, GAO has used other terms to describe access to
employer-provided pensions. For example, GAO has indicated that
employers can "sponsor" a pension plan (similar to "offering" a plan)
and workers can be "covered" by a plan (similar to being "included" in
a plan). See GAO, Pension Plans: Characteristics of Persons in the
Labor Force without Pension Coverage, GAO/HEHS-00-131 (Washington,
D.C.: Aug. 22, 2000).
[22] Most workers in the self-employed and independent contractor
categories do not have employers and were excluded from our analysis of
employer-provided pensions.
[23] Most workers in the independent contractor category were self-
employed.
[24] All of the key laws designed to protect workers have some
exclusions, such as exclusions for small businesses, that apply to both
contingent workers and standard full-time workers. We did not, however,
examine whether contingent workers are disproportionately affected by
these exclusions.
[25] Applicants are generally disqualified from receiving benefits when
job loss is due to voluntary separation without good cause, although
the definition of "good cause" varies from state to state.
[26] According to a report by the National Employment Law Project
("Part Time Workers and Unemployment Insurance," March 2004),
unemployed workers who limit their search for new work to only part-
time jobs are denied unemployment benefits in many states because
workers are not available for full-time employment. Since 2001, 24
states and the U.S. Virgin Islands maintain restrictive rules regarding
part-time unemployment insurance eligibility.
[27] A "sufficient community of interest" includes factors such as
common supervision, working conditions, and interest in the unit's
wages, hours, and conditions of employment.
[28] M.B. Sturgis, 331 NLRB 1298 (2000) and H.S. Care L.L.C., 343 NLRB
No.76 (2004).
[29] See app. IV for descriptions of the tests used under each law.
[30] Complaints are a key component of DOL enforcement efforts under
FLSA. DOL enforcement of FLSA generally relies on two types of
information to identify potential violations: (1) complaints from
individuals who believe they may have suffered a violation and (2)
analysis of data to specifically target problematic industries or work
sites.
[31] In 2005, DOL began an "Off-the-Clock" initiative to identify
employers who do not compensate workers for all the hours that they
work and who may not keep accurate wage and employment records for
their workers (also referred to as "off the books"). Although the focus
is off-the-clock work, this effort may help detect employee
misclassification. This initiative includes training, outreach, and
investigation. The investigator training includes a section on
employment relationship, with questions and scenarios about how to
determine whether a worker is an independent contractor or an employee.
[32] According to DOL officials, in some cases, misclassification may
be considered an FLSA record-keeping violation, but there are no
penalties for record-keeping violations under FLSA.
[33] DOL's Wage and Hour Division prescribes the content of the FLSA
workplace poster (WH Publication 1088).
[34] Beginning in 2005, DOL's Employment & Training Administration
(ETA) has been involved in efforts to coordinate with other agencies
about misclassification: (1) ETA has coordinated with IRS to assist
states in obtaining IRS 1099 information to identify misclassification
in state unemployment insurance tax audits and (2) ETA is participating
on an interagency Questionable Employment Tax Practices team with IRS,
federal tax administrators, and state workforce agencies to develop a
memo of understanding, share information, and coordinate compliance
activities. The team is planning to address several issues, including
misclassification.
[35] The IRS officials we contacted about this could not comment on the
specifics of referrals at the district level.
[36] Also, some districts have made referrals and conducted general
outreach to IRS when DOL has identified that employers are paying
workers in cash, and most likely are not paying taxes. However, this
practice is not necessarily employee misclassification.
[37] One district has coordinated with state agencies that enforce tax,
workers' compensation, unemployment insurance, and Social Security laws
about workers paid in cash and probably not paying taxes. However, this
practice is not employee misclassification.
[38] GAO, Contingent Workers: Incomes and Benefits Lag Behind Those of
Rest of Workforce, GAO/HEHS-00-76 (Washington, D.C.: June 30, 2000).
[39] The years 1995, 1999, and 2005 were selected to examine changes in
the size of the contingent workforce over the past decade in order to
reflect the changes that occurred during the time period covered in our
2000 review of contingent workers (1995-1999) as well as those
occurring since that time (1999-2005).
[40] See Technical Paper 63RV: "Current Population Survey--Design and
Methodology," issued March 2002.
[41] See Anne E. Polivka, "Contingent and Alternative Work
Arrangements, Defined," Monthly Labor Review (Oct.1996), pp. 3-9 for a
description of how BLS defines and estimates the contingent workforce.
[42] Current Population Survey, February 2005: Contingent Work
Supplement File Technical Documentation CPS-05.
[43] For example, an estimated 30.6 percent of the 2005 workforce are
contingent workers;
the 95 percent confidence interval for this estimate would be within
29.6 and 31.6 percent.
[44] See Susan N. Houseman, Flexible Staffing Arrangements, August
1999, and Anne E. Polivka, Sharon R. Cohany, and Steven Hipple,
"Definition, Composition, and Economic Consequences of the Nonstandard
Workforce," in Nonstandard Work: The Nature and Challenges of Changing
Employment Arrangements, Industrial Relations Research Association
Series 2000, edited by Francoise Carre, Marianne A. Ferber, Lonnie
Goldman, and Stephen A. Herzenberg, for examples of the research used
to model the different categories of contingent workers.
[45] The category of direct-hire temps was constructed using several
questions from the supplement. We included workers who indicated that
although they did not work for a temporary employment agency, their job
was temporary or they could not stay in their jobs as long as they
wished for one of the following reasons: (1) they were working only
until a specific project was completed, (2) they were temporarily
replacing another worker, (3) they were hired for a fixed period of
time, (4) their job was seasonal, or (5) they expected to work for less
than a year because their job was temporary.
[46] 29 U.S.C. 201 et. seq.
[47] FLSA also includes record-keeping and child labor provisions.
[48] Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947).
[49] Ansoumana v. Gristede's Operating Corp., 255 F. Supp. 184 (2003).
[50] Herman v. Mid-Atlantic Installation Services, Inc., 164 F.Supp2d
667 (2000).
[51] Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir. 1996).
[52] Wolf v. Coca Cola, 200 F.3d 1337 (11th Cir.2000);
Bronk v. Mountain States Tel. & Tel., Inc., 140 F. 3d 1335 (10th
Cir.1998);
Abraham v. Exxon Corp., 85 F.3d 1126 (5th Cir.1996).
[53] The IRS issued an unnumbered Technical Advice Memorandum on July
28, 1999, approving a clause excluding from participation in the plan
individuals whom the employer had engaged and treated as independent
contractors, even if they were later found to be employees.
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