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How Worker Misclassification Affects Workers’ Compensation, Other Benefits


With freelancing and contract work on the rise in recent years, many employers are taking advantage of this. They are hiring more contractors to do work. But the problem is that these workers are being treated as employees.

Misclassification of workers is increasing as companies forego hiring employees and instead hire independent contractors for low wages. Because these contractors are not technically employees, they are not entitled to any benefits. What this means is that employers save money on workers’ compensation, paid time off, healthcare insurance, and other benefits.

This recently happened in New York City. A hotel management company misclassified numerous workers as independent contractors. The U.S. Department of Labor’s Wage and Hour Division performed an investigation and recovered $113,613 in back wages and liquidated damages for 71 employees. These workers were denied full wages, including overtime, due to the misclassification.

The company, Greenparc Hospitality NY LLC, provides hospitality staff to about 20 hotels in Manhattan and at John F. Kennedy International Airport. The company violated federal law by misclassifying 69 of the affected employees. It paid the workers, which included housekeepers, room attendants, and bell staff, straight pay for all hours worked, including overtime hours.

Greenparc also did not pay any incentives such as shift pay for overnight work, quarterly bonuses, and performance bonuses to the 28 employees who were owed additional wages. The violations caused the Wage and Hour Division to recover $56,806 in back wages owed and the same amount in liquidated damages.

Effects of Misclassification

Greenparc could have avoided these violations by paying workers fairly. The terms “independent contractor” and “employee” are not synonymous. Employers cannot simply label workers as they please in order to avoid extra costs.

Independent contractors, for the most part, have their own schedules and use their own equipment to perform work. They have autonomy and flexibility. They also tend to be project-based and are not eligible for benefits. Employees, on the other hand, have a long-term relationship with companies. They use the employer’s equipment and have a set schedule that they must abide by.

Employees are required to be paid fairly under federal law. The Fair Labor Standards Act (FLSA) requires that most employees in the U.S. be paid at least the federal minimum wage for all hours worked (or the state minimum wage, whichever is higher). Employees must also be paid overtime (1.5 times the regular rate of pay) for all hours worked over 40 in a workweek.

Misclassifying workers as independent contractors is a serious concern. It harms workers and their families. It denies employees benefits such as unemployment insurance and workers’ compensation. It also decreases Social Security contributions. On top of that, misclassification undercuts competitors who obey the law.

Contact Us for More Information About Workers’ Compensation Benefits

Misclassifying workers affects everyone. Employers get fined, while employees lose out on benefits and fair wages.

If you have been injured in the workplace, make sure you get the benefits you are entitled to receive. A White Plains workers’ compensation lawyer from The Law Office of Michael Lawrence Varon can assist you with the process. To schedule a free initial consultation, fill out the online form or call (914) 228-1770.



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