An editor at Epicurious seemed super excited last week when he announced “an amazing job” opportunity for a food writer on Twitter.
Except that the details of the “full-time freelance” job he described — being paid hourly for 40 hours a week with zero benefits — didn’t seem so amazing. In fact, the setup sounded illegal.
So did the details of another recent job opening on Medium, which sought writers to work full-time hours but as independent contractors.
Both job postings prompted viral outrage from journalists on Twitter, who accused hiring managers of trying to misclassify employees as contractors to avoid paying taxes and benefits.
Journalists reported both job postings to the New York Department of Labor; the agency now says it’s investigating the Epicurious job posting. It’s unclear if the agency is also looking into the Medium posting.
The entire back-and-forth on Twitter was quite remarkable, but not for the obvious reasons. Employers misclassify workers all the time, and yes, it’s illegal. They often get away with it because job candidates don’t realize what the labels mean and because the penalties for breaking the law are minimal.
In this case, the remarkable part is that workers pushed back against employers and reported the companies to New York labor officials. (The Epicurious editor has since announced that the food writer gig will include full benefits after all following the outcry).
Understanding the difference between an independent contractor and an employee is crucial for workers. Companies have a huge incentive to mislabel employees because they don’t have to pay taxes for a contractor’s Social Security, Medicare, unemployment benefits, and health insurance premiums. They also don’t have to pay an independent contractor overtime, workers’ compensation, or even the minimum wage.
And they don’t have to worry about contractors joining a labor union because only employees have the right to do that. In other words, an employee who is misclassified as an independent contractor is getting screwed.
It’s nearly impossible to know exactly how widespread the problem is because the federal government doesn’t regularly track misclassification. It normally takes a worker filing a complaint with the US Labor Department for officials to look into it.
But here’s what we do know: Millions of employees are misclassified each year, and it’s costing state and federal governments billions of dollars in lost tax revenue. The Internal Revenue Service estimates that payroll fraud, including misclassification, is costing the federal government $16 billion each year in lost taxes from employers. Misclassification is also one of the main culprits behind thousands of wage-theft violations resolved by the Department of Labor each year.
But unless workers are aware of the scam and report it to authorities, and unless Congress strengthens penalties against employers who misclassify employees, the incentive to break the law will just intensify — especially at a time when workers are pushing Congress to pass mandatory paid parental leave and sick pay laws.
The difference between freelancer, independent contractor, and employee
First of all, freelancers are independent contractors. The word “freelancer” is not a legal term but is often used to describe independent contractors who work in the media industry and creative fields and those who pitch projects to multiple clients while retaining flexibility over their schedule.
An independent contractor (or freelancer) is not supposed to be working in a newsroom for 40 hours a week under a supervisor who has direct control over their work performance.
That’s what you call an “employee.”
At the most basic level, the legal difference between an independent contractor and an employee comes down to how much control a company has over an individual and their work. Independent contractors are small-business owners. The company is one of their clients, not their employer.
Here’s how you know if you are an independent contractor under the law: You are free to do business with as many companies as you would like, and you probably have your own business card (not another company’s business card). Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.
As an independent contractor, you get to make your own schedule. You decide if you want to sleep in and work only four hours that day or work all night for 15 hours straight. You bought your own computer and any other equipment you use for work. You don’t need training or detailed instructions on how to do your work, because you are selling a service you already know how to perform. You probably have a specialized skill, such as video editing or social media management, that is not part of your client’s main revenue stream.
Independent contractors probably work from home or have your own office or coworking space. You get paid a flat fee for your work, not an hourly wage, and you definitely don’t have a supervisor dictating what you should do each day and how you should do it.
Here’s an example of an attorney who is an independent contractor, according to Workforce, a website geared toward human resource professionals:
So how can you tell if you’re actually an employee but your employer has misclassified you as an independent contractor? The company would have asked you to fill out the 1099 tax form instead of a W-2 form, for one.
But if your job sounds more like this, you may be an employee who has been — intentionally or unintentionally — misclassified: You get a regular paycheck and are expected to work certain hours. You are expected to work from a company’s office or newsroom, and the company loans you a desk, a computer, and other office equipment.
But even if you work remotely, if you have a supervisor who gives you detailed instructions about how to do your work each day and when to do it, then you’re probably an employee. If your business card has the company’s logo on it, that’s another sign. And if you are not allowed to work for anyone else, then you are definitely an employee.
Here’s an example of an employee from Workforce:
Like the example above, just because you use your own equipment doesn’t mean you are automatically an independent contractor. Some parts of your job description may fit with the description of an independent contractor, and others with that of an employee. But if you pull back and view your job description as a whole, you are an employee if a business has direct control over you and your work each day.
So it makes sense why journalists were outraged when Epicurious posted the job for a full-time freelance writer. After all, the description included a detailed breakdown of the daily job duties: 20 percent of time spent producing newsletters, 40 percent writing, 15 percent producing recipes, 15 percent working on search engine optimization, and 10 percent on administrative duties.
It’s clear that Epicurious misclassified the position, and this explains why the editor later said the position would include standard employee benefits after all.
Employers would love to only hire independent contractors
It’s not hard to understand why companies would rather hire contractors to do the work of an employee. It allows them to exploit workers because companies don’t have to comply with any federal labor laws for those individuals.
Because independent contractors are considered business owners, not workers, they aren’t protected by the Fair Labor Standards Act or the National Labor Relations Act. They also aren’t protected from discrimination under the Civil Rights Act, Equal Pay Act, or Americans with Disabilities Act.
Instead of going into detail about how that harms workers, here’s a chart from the National Employment Law Project, which advocates for fair workplace policies, that sums it up pretty well:
By omitting these labor protections, it’s pretty obvious that employers who intentionally misclassify workers are trying to exploit them. For one, they avoid getting sued for violating labor laws because workers may not realize they’ve been misclassified and therefore have the right to sue.
But there’s another incentive for employers to break the law: It saves them a lot of money. They don’t have to pay payroll taxes for independent contractors, which goes toward the person’s Social Security and Medicare benefits. Self-employed taxpayers, such as independent contractors, must pay the entire amount of Social Security and Medicare taxes themselves, about 15 percent of their income.
Misclassifying employees also allows businesses to avoid paying unemployment insurance, disability insurance, health insurance premiums, and workers’ compensation benefits. Independent contractors aren’t entitled to any of that.
NELP estimates that it costs employers about 30 percent less to hire an independent contractor than it does to hire an employee.
Here’s the group’s summary of the financial impact on workers:
Misclassifying employees also undercuts competition, hurting other businesses who play by the rules, according to Catherine Ruckelshaus, an attorney for NELP.
“It’s really nefarious,” Ruckelshaus told me. “In an industry like journalism, you can see why workers are banding together to unionize and refusing to work as contractors.”
Misclassification happens more often than you think
Even though it’s impossible to get precise data on how often employers misclassify their workers, there’s no doubt that it’s a big problem. The IRS, the Government Accountability Office, and the Inspector General for Tax Administration have repeatedly raised concerns about how often employers misclassify employees as contractors.
The deputy inspector general for audit at the Treasury Department wrote in a 2009 memo to the agency’s head of enforcement:
In September 2011, the IRS and DOL agreed to work together to share information to prevent misclassification and report on their progress each year.
In 2017, a long-awaited report was published by the Government Accountability Office, analyzing government efforts to combat tax fraud. The report summarized findings from an IRS audit of 15.7 million tax returns from 2008 to 2010. It turns out that about 3 million of those returns involved misclassification, adding up to about $44.3 billion in unpaid federal taxes that were later adjusted.
Since then, little progress has been made. In December, the Treasury Department said misclassification is still a “nationwide problem” and that the IRS and Labor Department are not doing enough to address it.
Misclassification is more common in some industries than others, according to NELP. Some of the lowest-paid, least educated workers are often the ones who get misclassified, such as janitors and construction workers.
The rise of the so-called gig economy has brought the issue to the forefront even more. Companies such as Uber, Lyft, and Instacart rely on millions of independent contractors to make their business work. Uber drivers have spent years fighting the company in court, saying they have been intentionally misclassified. They argue that they should be considered employees because the company has so much control over their workday, including strict rules on their vehicle conditions, what rides they can take, and which routes to take.
Uber has fought back, arguing that drivers are not employees because they set their own schedules and provide their own cars.
So far, the issue has not been resolved.
Last week, Uber settled the main court case with 13,600 Uber drivers, agreeing to pay them $20 million, but without changing their status as independent contractors. The other 350,000 drivers who were part of the initial class-action lawsuit had signed mandatory arbitration agreements, so a federal judge is requiring them to pursue their cases in a private forum, where they are less likely to win their case.
“This is not the end of the issue of driver classification,” their attorney, Liss-Riordan told the Verge in an email. “We are continuing to pursue many cases against gig economy companies that are misclassifying their workers as independent contractors, in order to save on labor costs and shift the risks and expenses of operating a business to their low wage workers.”
She mentioned pending lawsuits against Amazon, GrubHub, Lyft, DoorDash, Postmates, Handy, and others.
Workers are now realizing how much leverage they have
The immediate backlash to the job descriptions for full-time freelancers reflects a larger economic trend in the US economy: Workers have more power now than at any time in modern history. That’s because the country is currently experiencing a major labor shortage. There just aren’t enough workers to fill all the available jobs.
For nearly a year now, the number of open jobs each month has been higher than the number of people looking for work — the first time that’s happened since the Department of Labor began tracking job turnover two decades ago.
At the end of January, the US economy had 7.6 million unfilled jobs, but only 6.5 million people were looking for work, according to data released Friday by the US Department of Labor. This was the 11th straight month that the number of job openings was higher than the number of job seekers. And each month, the gap has grown.
Employers have been complaining about a shortage of skilled workers in recent years, particularly workers with advanced degrees in STEM fields. Nearly every industry now has a labor shortage, but here’s the twist: Employers are having a harder time filling blue-collar positions than professional positions that require a college education.
The hardest-to-find workers are no longer computer engineers. They are home health care aides, restaurant workers, and hotel staff. The shift is happening because more and more Americans are going to college and taking professional jobs, while working-class baby boomers are retiring en masse.
This means that — for once — low-skilled workers have the most leverage in the current labor market. Which means there’s no better time for working-class Americans to demand better wages, benefits, schedules, and work conditions.