• James Parrott and L.K. Moe

The (Low) Wages of Misclassification: What One in 10 New York Workers Face



 

Some 873,000 workers in many of New York State’s major low-paying industries – roughly 10 per cent of the state’s total workforce –are wrongly classified as “independent contractors.” The result: They earn substantially less than payroll employees in those industries do, while also being denied the basic benefits and protections payroll workers have.

These are among the principal findings of a groundbreaking report, “For One in 10 New York Workers, 'Independent Contractor' Means Underpaid and Unprotected,” [LINK] released today by the Center for New York City Affairs (CNYCA) at The New School.

In it, we focus on workers currently classified as independent contractors in 11 low-paying industries. Three-quarters of them are in transportation, construction, retailing, administrative and support services, and a catchall “other services” category that takes in nail salon and car wash workers, among other occupations.

We found that, as a group, fulltime contractors in these industries only earn 69 percent as much as fulltime payroll employees do. Even these earnings are – for example, in the transportation industry – often overstated, since they are gross receipts and don’t reflect work-related expenses that contractors must meet themselves.

More than that, misclassification as independent contractors denies such workers coverage by social insurance programs, including Social Security, unemployment insurance, workers’ compensation (in most cases), and paid family and medical leave. They have no legal right to bargain collectively with employers, expect overtime pay for working longer than 40 hours per week, or receive employer-offered health and retirement benefits.

Such misclassification penalizes workers – and our entire society. It strains government social programs; their low earnings make thousands of low-paid independent contractors reliant on Food Stamps, and, because they’re denied employer-based health insurance coverage, Medicaid. Misclassification also puts employers who respect State labor laws at a competitive disadvantage to those who don’t.

Our research shows that this low-paid, precarious workforce is a widespread phenomenon; independent contractors in low-paid industries are found in every region of the state. We also found that in recent years, the proportion of this workforce composed of women and of people of color has been on the rise, especially in New York City.

Reliance on low-paid independent contractors typifies a broader trend of fragmentation, fissuring, and deterioration of payroll jobs into more precarious and less-protected forms of work. It’s part of an increasingly prevalent management strategy of cutting labor costs by underpaying workers and skirting employer obligations to social insurance programs.

The gig economy, characterized during 2014-19 by an explosion in Uber and Lyft app-based for-hire drivers and then with the onset of Covid-19, by the increase in restaurant, food, and package delivery workers, has dramatized this trend. We estimate that there are currently some 190,000 low-paid contractors (“gig workers”) in the state whose work is mediated by online labor platforms.

The good news is that progressive policy measures intended to benefit gig workers and other low-paid industry contractors have begun to level this playing field. In 2018, for example, New York City adopted the nation’s first minimum pay regulation for app-based for-hire drivers. Last year, the City Council also passed a package of measures protecting app-based food delivery workers, with a pay standard taking effect January 1st, 2023.

In the construction industry, State enactment and enforcement of a 2010 “fair play” act has greatly reduced independent contractor misclassification. State leaders have now also begun to ramp up hiring of wage and hour investigators – a welcome reversal of a years-long shrinkage in investigatory ranks caused by State Labor Department budget cuts.

More needs to be done. State leaders should, for example, extend the “presumption of employment” standard embodied in the Construction Industry Fair Play Act to other industries, and also close a loophole in the Transportation Industry Fair Play Act. A law enacted last year that makes construction companies legally responsible for wages and benefits of workers employed by their subcontractors should be extended to warehouses and other industries plagued by abuses. Legislation is also needed to curb cutthroat pricing practices in nail salons.

Here's how one labor leader, Julie Bracero Kelly, general manager of the NY/NJ joint board of Workers United, responded to our report’s findings when we shared them with her.

“Employee misclassification is a growing and pervasive issue in New York that has exponentially increased the number of precarious, low-wage jobs lacking in basic labor protections,” she said. “New York must step up to the plate and address this issue by ensuring that workers misclassified as 'contractors' become protected employees." 

We agree.


 

James A. Parrott is the director of economic and fiscal policies at the Center for New York City Affairs (CNYCA) at The New School. L.K. Moe is assistant director for economic research for the Covid-19 Economic Recovery Project at CNYCA.

Photo by: Peter Burka
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