Video Misclassification of workers under review

Misclassification of workers under review

The Pension Management Oversight Committee took up the issue of worker misclassification during a Statehouse meeting on Wednesday, September 29. The committee heard from Dept of Labor Commissioner Lori Torres about guidelines and procedures for investigating misclassification questions and complaints.

Download the Indiana Department of Labor Report to Pension Management Oversight Commission on Employee Misclassification (PDF)>>

Watch a video update from the meeting by committee member Sen. Karen Tallian of Portage:


The Dept of Labor was required to make the presentation under Senate Enrolled Act 23 approved in 2010. The Act required Dept of Labor to develop “guidelines and procedures for investigating questions and complaints concerning employee classification and a plan for implementation of those guidelines and procedures” and to implement and adopted rule by August 1, 2011.

Information from the Dept of Labor 9/29/10 Report:

Definition of the Issue

States across the country have identified the misclassification of employees as independent contractors as a problem from multiple perspectives. Workers, businesses and government are all disadvantaged in varying degrees and ways by worker misclassification. Worker misclassification occurs when a worker who meets the statutory or common law definition of an employee is treated as a self employed worker or independent contractor. Whether by agreement, out of ignorance or misunderstanding, or intentionally, there are employers who fail to properly claim a worker as an employee. An employer does not avoid its obligation by failing to acknowledge a worker as an employee, but enforcing compliance with the law can be made more difficult.

Workers are disadvantaged when they are deprived of minimum wage or overtime pay and are forced to pay the employer’s portion of withholding taxes. Furthermore, they are left with no recourse if they are injured on the job, as they have no worker’s compensation coverage, and are not protected by occupational safety and health rules which also cover only employees. Those same workers have no access to the protection of the Americans with Disabilities Act, Age Discrimination in Employment Act and Family Medical Leave Act, among others. Some misclassification is discovered only when a worker is injured and seeks worker’s compensation coverage, only to find that none exists. Other misclassification is an intentional act on behalf of both the employer and the employee to avoid the reporting of wages and payment of tax obligations. Less sophisticated workers may not understand that despite an employer’s attempt to characterize them as non-employees, if they meet the definition, the employer is required to meet its obligations for them.

Employers are disadvantaged when competitors misclassify employees and accordingly have lower labor costs. They lose work to these employers who are seemingly rewarded for their misclassification. These employers generally fail to keep records required of employers in Indiana. Additionally, those same employers avoid the need to document a worker’s right to work legally in the U.S. and Indiana.

Governments are disadvantaged when employers fail to pay premiums to the Unemployment Insurance Trust Fund for individuals deemed employees by UI law. Governments also are harmed by the failure of an employer to withhold taxes on an employee, particularly due to the increased challenges of recovering taxes due directly from an individual. Furthermore, those individuals that are injured on the job without the workers compensation safety net to which they are entitled often becomes users of other social services as a result of those injuries and their inability to work.