Many employers will hire — what they believe to be — independent contractors to perform necessary work because it reduces the cost of labor. Independent contractors do not receive many of the benefits that employers provide to their employees such as health and welfare, or paid time off for vacations or sick leave. They are not employees so employers do not have to provide family and medical leave, minimum wage or overtime compensation, unemployment insurance or workers’ compensation.
But many independent contractors are really employees. The misclassification of employees as independent contractors leads to significant revenue losses for federal, state and local governments. In the last comprehensive study of the misclassification problem in 1984, the IRS estimated that 15 percent of all employers misclassify a total of 3.4 million employees as independent contractors, resulting in an estimated annual revenue loss of $1.6 billion. The U.S. Department of Labor estimates that up to 30 percent of employers currently misclassify employees as independent contractors.
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