As many as 10–30% of employers misclassify workers at an enormous cost to both workers and social insurance systems.
New analysis from the National Employment Law Project, focusing on state-level reports on employee misclassification, estimates that social insurance syst
ems can lose up to 30% of per-worker revenue when workers are misclassified as independent
contractors, as independent contractors make no contributions to unemployment insurance an
d workers’ compensation systems.
Independent contractors in the occupations analyzed in the report also typically earn less than
they would as employees, and this lower pay translates directly into lower contributions to Social Security.
For workers, misclassification can strip minimum wage and overtime protections, workers’
rights, and eligibility for unemployment insurance or workers’ compensation, employer-provided health insurance and retirement benefits. Misclassificatio
n also shifts the full burden
of social insurance costs—including Social Security and Medicare—to workers.
For example, a typical construction worker misclassified as an independent contract
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or would lose as much as $20,399 in annual income and job benefits compared with what they would have earned as an employee.
The issue disproportionately impacts people of color, women, and immigrants, who are more likel
y to be in occupations where misclassification is c
mmon, such as construction workers, truck drivers, janitors and housekeeping roles, home h
ealth and personal care aides, retail sales workers, and landscaping and groundskeeping workers.
Given the high stakes of misclassification for workers’ access to fundamental rights and protections, embedding strong legal definitions in state an
d federal law is fundame
ntal to ensuring that employees are not improperly classified as independent contractors. In
2025 and 2026, lawmakers in at least 12 states proposed or passed legislation to address work
er misclassification. Most recent state efforts have focused on increasing accountability of
mployers that misclassify wo
rkers, bolstering remedies for workers subject to illegal misclassification, and strengthening enforcement capacity.
