CLEVELAND, OH – Alongside workers who have been denied wages, benefits, and protections because they have been misclassified, U.S. Sen. Sherrod Brown (D-OH) and U.S. Secretary of Labor Thomas E. Perez outlined efforts that would protect workers and businesses that play by the rules. In Cleveland today, Brown announced plans to introduce new legislation that would close a loophole in the tax code that allows employers to openly treat full-time workers as independent contractors in order to avoid providing them with earned safeguards and benefits – like payroll tax withholding, overtime, unemployment insurance, and workers’ compensation.
“We should call this what it is: fraud,” Brown said. “We see it in industries from trucking and construction, to service sectors like landscaping and home health care. If employees are classified as independent contractors, then an employer doesn’t have to pay them overtime or contribute to their Social Security or Medicare benefits. When companies cheat tax law and misclassify employees, workers lose, honest businesses lose, and taxpayers lose. This is unfair to workers, unfair to businesses that play by the rules, and it must stop.”
“Misclassification denies workers of their rights under our nation’s labor laws and allows employers to cheat the system,” Perez said. “Combatting worker misclassification is a priority for the Department of Labor, and I’m grateful for Sen. Brown’s leadership in addressing this important issue.
Brown and Perez were joined by a group of workers, including a former FedEx employee – one of 2,300 drivers who were part of a lawsuit in which a Federal court ruled that the company misclassified its employees. The workers discussed how worker misclassification has denied them access to the wages, benefits, and health and safety protections they have earned.
Worker misclassification is widespread in sectors like maintenance and janitorial services, the building trades, agriculture, child care, and construction—industries that employ some of the lowest-paid and most vulnerable American workers.
By paying workers under-the-table or classifying workers as independent contractors rather than employees under Federal tax law, employers can avoid providing workers with earned safeguards and benefits – like payroll tax withholding, overtime, unemployment insurance, and workers’ compensation. This practice not only allows employers to deny workers overtime, Social Security, or Medicare benefits, but also cheats the Federal government and State of Ohio out of billions in tax revenue, while putting businesses that play by the rules at a competitive disadvantage.
Brown’s bill, the Fair Playing Field Act, would address this by ensuring that full-time employees are no longer misclassified. Specifically, the bill would:
Employers who have a reasonable basis for their worker classifications will also continue to pay reduced penalties if they are found to have misclassified workers, while employers who violate the IRS misclassification guidance without any reasonable basis will pay higher penalties.