Business models that attempt to change or obscure the employment relationship through the use of "independent contractors" are not inherently illegal, but they may not be used to evade compliance with federal labor law, as many businesses do.
Although legitimate independent contractors are an important part of our economy, the misclassification of employees presents a serious problem, as these employees often are denied access to critical benefits and protections–such as family and medical leave, overtime compensation, minimum wage pay and Unemployment Insurance–to which they are entitled. In addition, misclassification can create economic pressure for law-abiding business owners, who often find it difficult to compete with those who are skirting the law.
Recently, officials of the U.S. Department of Labor's Wage and Hour Division, the New York State Labor Department and the New York State Attorney General Eric T. Schneiderman's Office signed a "memoranda of understanding" to protect the rights of employees by preventing their misclassification as independent contractors or other nonemployee statuses.
$18.2 million in back wages were paid to more than 19,000 workers where workers were not treated or classified as employees. This represents a 97 percent increase in back wages following the implementation of these agreements.
"Misclassification deprives workers of rightfully-earned wages and undercuts law-abiding businesses," said Laura Fortman, the principal deputy administrator of the Wage and Hour Division. "These memoranda of understanding send a clear message that we are standing together with the State of New York to protect workers and responsible employers and ensure everyone has the opportunity to succeed."
"When employers misclassify employees as independent contractors for their own gain, they hurt their employees and they even hurt other businesses — the law-abiding employers who don't steal from their employees," said New York State Labor Commissioner Peter Rivera. (More here at the Department of Labor.)
Read my related post: Wage Theft by Employers is Rampant