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Exploring the Costs of Classifying Workers as Independent Contractors: Four Illustrative Sectors

Robert Habans

December 1, 2015

Gig Economy, Publications, The Future of Work, Paper


Many workers receive payment as independent contractors rather than as traditional employees. Such “1099” workers include both high-skilled professionals and those on the marginal fringes of the formal economy, both those who prefer flexible engagements and those who suer fraudulent misclassification, both long-standing occupations and new work relationships in the “sharing economy”. This report explores the business case for independent contractors by presenting scenarios for four dierent types of workers: truck transportation, home health care, web developers, and construction workers. Publicly available data is used to roughly quantify the non-wage and salary costs escaped by employers who engage workers as independent contractors rather than as wage-and-salary employees. This exploratory exercise illustrates how non-wage and salary costs dier across industries and occupations. For the scenarios presented here, independent contractor status saves businesses between 29 and 39 cents for every dollar of pay – possibly more for certain classes of construction workers. These estimates raise deeper questions regarding how these costs are shied onto workers and onto the public sector.

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