Today’s New York Times includes an article about the Obama administration’s effort to crack down on employers who improperly classify some employees as independent contractors. These employees receive IRS Form 1099s rather than W2s. The result is that the employer avoids having to make payroll tax contributions towards Social Security and Medicare, as well as having to avoid labor and worker’s compensation laws.
I strongly support this crackdown because one of the often overlooked consequences of this is that these misclassified employees – particularly low wage earners — are often uniformed and do not pay payroll taxes on their own. When they don’t, they do not contribute to the Social Security trust fund and do not earn quarters of coverage. If they have worked for a significant period of time as an independent contractor, they often lose (or never acquire) coverage under the Social Security disability program. A person who may have considered themselves an employee for years may become disabled and discover that they are not eligible to draw from the benefit pool from which other properly-classified workers receive benefits. Even if they still do qualify because of quarters of coverage earned at other jobs, their benefit amount is likely to be significantly reduced because of the lack of contributions during the period of employment as an independent contractor. These misclassified employees are thus left to rely on the Supplemental Security Income (SSI) program which has strict income and asset limitations and usually much smaller payments.
