Employee Misclassification
Improved Outreach Could Help Ensure Proper Worker Classification Gao ID: GAO-07-859T May 8, 2007Some workers do not receive worker protections to which they are entitled because employers misclassify them as independent contractors when they should be classified as employees. Key worker protections include minimum hourly wage and overtime pay and access to unemployment insurance. The Department of Labor (DOL) enforces several labor laws to protect workers, including the Fair Labor Standards Act (FLSA). Misclassification can also have a negative impact on tax collection for Social Security, unemployment insurance, and other programs. This testimony draws upon a previous GAO report and focuses specifically on (1) the number and characteristics of independent contractors, (2) the workforce protections and benefits provided to employees that typically are not available to independent contractors, and (3) the actions that DOL takes to detect and address employee misclassification.
The number of independent contractors in the total employed workforce grew from 6.7 percent in 1995 to 7.4 percent in 2005. In 2005, there were 10.3 million independent contractors. Independent contractors, in 2005, had an average age of 46 years, were almost twice as likely to be male than female, and almost two-thirds had some college or higher education. Independent contractors were employed in a wide range of industries (such as professional services and construction) and occupations (including sales and management). When employees are misclassified as independent contractors, they may be excluded from coverage under key laws designed to protect workers and may not have access to employer-provided health insurance coverage and pension plans. Moreover, misclassification of employees can affect the administration of many federal and state programs, such as payment of taxes and payments into state workers' compensation and unemployment insurance programs. Notably, the tests used to determine whether a worker is an independent contractor or an employee are complex, subjective, and differ from law to law. 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 procedures require officials to share information with other federal and state agencies whenever investigators find possible violations of other laws. However, the district offices GAO contacted vary in how often they forward misclassification as a possible violation of other laws. As one form of outreach to workers, DOL has an FLSA workplace poster that explains the act, but it is missing key contact information.
GAO-07-859T, Employee Misclassification: Improved Outreach Could Help Ensure Proper Worker Classification
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Testimony before the Subcommittee on Income Security and Family Support
and Subcommittee on Select Revenue Measures, Committee on Ways and
Means, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 9:30 a.m. EDT:
Tuesday, May 8, 2007:
Employee Misclassification:
Improved Outreach Could Help Ensure Proper Worker Classification:
Statement of Sigurd R. Nilsen, Director:
Education, Workforce, and Income Security:
GAO-07-859T:
GAO Highlights:
Highlights of GAO-07-859T, a testimony before the Subcommittee on
Income Security and Family Support and Subcommittee on Select Revenue
Measures, Committee on Ways and Means, House of Representatives
Why GAO Did This Study:
Some workers do not receive worker protections to which they are
entitled because employers misclassify them as independent contractors
when they should be classified as employees. Key worker protections
include minimum hourly wage and overtime pay and access to unemployment
insurance. The Department of Labor (DOL) enforces several labor laws to
protect workers, including the Fair Labor Standards Act (FLSA).
Misclassification can also have a negative impact on tax collection for
Social Security, unemployment insurance, and other programs. This
testimony draws upon a previous GAO report and focuses specifically on
(1) the number and characteristics of independent contractors, (2) the
workforce protections and benefits provided to employees that typically
are not available to independent contractors, and (3) the actions that
DOL takes to detect and address employee misclassification.
What GAO Found:
The number of independent contractors in the total employed workforce
grew from 6.7 percent in 1995 to 7.4 percent in 2005. In 2005, there
were 10.3 million independent contractors. Independent contractors, in
2005, had an average age of 46 years, were almost twice as likely to be
male than female, and almost two-thirds had some college or higher
education. Independent contractors were employed in a wide range of
industries (such as professional services and construction) and
occupations (including sales and management).
When employees are misclassified as independent contractors, they may
be excluded from coverage under key laws designed to protect workers
and may not have access to employer-provided health insurance coverage
and pension plans. Moreover, misclassification of employees can affect
the administration of many federal and state programs, such as payment
of taxes and payments into state workers' compensation and unemployment
insurance programs. Notably, the tests used to determine whether a
worker is an independent contractor or an employee are complex,
subjective, and differ from law to law.
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
procedures require officials to share information with other federal
and state agencies whenever investigators find possible violations of
other laws. However, the district offices GAO contacted vary in how
often they forward misclassification as a possible violation of other
laws. As one form of outreach to workers, DOL has an FLSA workplace
poster that explains the act, but it is missing key contact
information.
What GAO Recommends:
GAO is not making new recommendations at this time. The Department of
Labor generally agreed with the recommendations in the GAO report,
which focused on improvements to a worksite poster reaching out to
workers and DOL‘s efforts to forward misclassification cases to other
agencies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-859T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Sigurd Nilsen at (202)
512-7215 or nilsens@gao.gov.
[End of section]
Mr. Chairmen and Members of the Subcommittees:
Thank you for inviting me here today to discuss the misclassification
of employees as independent contractors. Some workers do not receive
worker protections to which they are entitled because employers
misclassify them as independent contractors when they should be
classified as employees. Key worker benefits and protections include
the guarantee of workers' rights to safe and healthful working
conditions, a minimum hourly wage and overtime pay, freedom from
employment discrimination, and access to unemployment insurance. 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 1]) in Social Security tax, unemployment
tax, and income tax.
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.
The information I am presenting today is based on findings from a July
2006 report, which examined various aspects of the contingent
workforce.[Footnote 2] Today, as requested, I will focus specifically
on independent contractors, one of eight categories of contingent
workers included in our report. I will discuss (1) the number and
characteristics of independent contractors, (2) the workforce
protections and benefits provided to employees that typically are not
available to independent contractors, and (3) the actions that DOL
takes to detect and address employee misclassification. To identify
information on the contingent workforce, 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; interviewed BLS officials and other researchers about
contingent worker issues; and reviewed key workforce protection laws to
determine coverage of contingent workers. To obtain information on
DOL's efforts to detect and address employee misclassification, we
reviewed DOL documents and interviewed DOL officials and 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.
In summary, the number of independent contractors in the total employed
workforce grew from 6.7 percent in 1995 to 7.4 percent in 2005. In
2005, there were 10.3 million independent contractors.[Footnote 3]
Independent contractors, in 2005, had an average age of 46 years, were
almost twice as likely to be male than female, and almost two-thirds
had some college or higher education. Independent contractors were
employed in a wide range of industries (such as professional services
and construction) and occupations (including sales and management). The
tests used to determine whether a worker is an independent contractor
or an employee are complex, subjective, and differ from law to law.
Nevertheless, when employees are misclassified as independent
contractors, they may be excluded from coverage under key laws designed
to protect workers and may not have access to employer-provided health
insurance coverage and pension plans. Moreover, misclassification of
employees can affect the administration of many federal and state
programs, such as payment of taxes and payments into state workers'
compensation and unemployment insurance programs. Finally, 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
procedures require officials to share information with other federal
and state agencies whenever investigators find possible violations of
other laws. However, the district offices GAO contacted vary in how
often they forward misclassification as a possible violation of other
laws. As one form of outreach to workers, DOL has an FLSA workplace
poster that explains the act, but is missing key contact information.
GAO recommended in its July 2006 report that DOL revise the workplace
poster to include additional contact information that would facilitate
the reporting of potential employee misclassification complaints, and
evaluate the extent to which misclassification cases identified through
investigations are referred to the appropriate federal or state agency,
and take action to make improvements as necessary. DOL generally agreed
with both recommendations.
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. Independent contractors, temporary workers, and part-time
workers are examples of contingent workers. Specifically, independent
contractors can be seen as individuals who obtain customers on their
own to provide a product or service (and who may have other employees
working for them), such as maids, realtors, child care providers, and
management consultants.
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
employees' requests for part-time hours, screen workers for permanent
positions, and save on wage and benefit costs, among other reasons.
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.
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.
Concerns arise when employers misclassify workers as independent
contractors, who are 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.[Footnote 4]
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. 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 5] 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. FLSA requires that an employer-employee relationship
exist for a worker to be covered by the act's provisions.
Number and Characteristics of Independent Contractors:
In 2005, an estimated 7.4 percent of the total employed workforce were
independent contractors. By comparison, 6.7 percent of the workforce
were independent contractors in 1995. During this time period, the
number of independent contractors grew from an estimated 8.3 million to
10.3 million workers in 2005. (In 2005, there were about 42.6 million
contingent workers in the workforce--representing an estimated 31
percent of the workforce.)
Independent contractors, in 2005, were on average 46 years old. The
majority were men (65 percent), had attended or graduated from college,
and 8 out of 10 were white, non-Hispanic. Independent contractors were
employed in a wide range of industries, but in 2005, 23 percent were
employed in professional services and 22 percent were employed in
construction. Regarding occupations, the percentage of independent
contractors in sales and related occupations (17 percent) and
management (16 percent) were greater than in other occupations. In
2005, 9 percent of independent contractors indicated that they would
prefer to work for someone else. About 11 percent of independent
contractors reported family income below $20,000.
Misclassification of Employees Can Have Negative Outcomes for Workers
and Government Programs:
The tests used to determine whether a worker is an independent
contractor or an employee are complex, subjective, and differ from law
to law. Nevertheless, when employees are misclassified as independent
contractors, they may be excluded from coverage under key laws designed
to protect workers and may not have access to certain employer-provided
benefits, such as health insurance coverage and pension plans.
Moreover, misclassification of employees can affect the administration
of many federal and state programs. For example, misclassification
could affect payment of taxes and payments into state workers'
compensation and unemployment insurance programs.
There Is Neither a Single or Simple Test Used to Determine whether a
Worker Is an Independent Contractor or an Employee:
No definitive test exists to distinguish whether a worker is an
employee or an independent contractor. 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
National Labor Relations Act, the Civil Rights Act, the Fair Labor
Standards Act, and the Employee Retirement Income Security Act each use
a different definition of an employee and various tests, or criteria,
to distinguish independent contractors from employees.
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 him or herself. 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.
Aside from the complexities of distinguishing employees from
independent contractors, employers have economic incentives to
misclassify employees as independent contractors. Namely, 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.
Misclassified Employees May Be Excluded from Coverage under Key Worker
Protection Laws:
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--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. In
addition, because these laws are based on the traditional employer-
employee relationship, they generally cover only workers who are
employees; independent contractors, therefore, are not covered.
Some of the key laws designed to protect workers but that only apply to
"employees" include the following:
* Fair Labor Standards Act--establishes minimum wage, overtime, and
child labor standards;
* Family and Medical Leave Act--requires employers to allow employees
to take up to 12 weeks of unpaid, job-protected leave for medical
reasons related to a family member's or the employee's own health;
* Occupational Safety and Health Act--requires employers to maintain a
safe and healthy workplace for their employees and requires employers
and employees to comply with all federal occupational health and safety
standards;
* National Labor Relations Act--guarantees the right of employees to
organize and bargain collectively;
* Unemployment Insurance--pays benefits to workers in covered jobs who
become unemployed and meet state-established eligibility rules; and:
* Workers' Compensation--provides benefits to injured workers while
limiting employers' liability strictly to workers' compensation
payments.
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.
Misclassified Employees May Not Have Access to Some Employer-Provided
Benefits:
Employees who are misclassified as independent contractors, because by
definition they would not be considered employees, may not have access
to certain employer-provided benefits, such as health insurance
coverage and pension plans. Some states and professional associations
have developed health insurance programs that help contingent workers
access health care. 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 for some
contingent workers.
Employee Misclassification Can Affect Administration of Government
Programs:
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.
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. 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.
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. 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.
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.
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. 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.
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 handbook 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 nine
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.
Conclusions and Recommendations for Executive Action:
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.
To facilitate the reporting of FLSA complaints, we recommended 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. Following the
publication of our report, DOL notified the Congress that it was
redesigning the poster and expected the work to be completed in spring
2007.
To facilitate addressing employee misclassification across federal and
state programs, we recommended 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. Following the
publication of our report, DOL notified the Congress that it was
researching the nature and effectiveness of the referral of potential
employee misclassification by different district offices to various
federal and state agencies. DOL also noted that it will consider
appropriate revisions to its procedures, and expected the work to be
done by the end of September 2007.
Mr. Chairmen, this concludes my prepared statement. I will be happy to
answer any questions that you or other members of the subcommittees may
have.
GAO Contacts and Staff Acknowledgments:
For future information regarding this testimony, I can be contacted at
(202) 512-7215. Key contributors to this testimony were Brett
Fallavollita and Linda Siegel.
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FOOTNOTES
[1] 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.
[2] GAO, Employment Arrangements: Improved Outreach Could Help Ensure
Proper Worker Classification, GAO-06-656 (Washington, D.C.: July 11,
2006). In this report, we define "contingent work" as work arrangements
that are not long-term, year-round, full-time employment with a single
employer.
[3] 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. For a full explanation of the methodology that we used and for
the magnitude of sampling error for CPS estimates, see GAO-06-656.
[4] GAO, Contingent Workers: Incomes and Benefits Lag Behind Those of
Rest of Workforce, GAO/HEHS-00-76 (Washington, D.C.: June 30, 2000).
[5] 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.
