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Independent Contractors: Prevalence and Implications for Unemployment Insurance Programs

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Independent Contractors: Prevalence and Implications for Unemployment Insurance Programs February 2000 Planmatics, Inc. 15200 Shady Grove Road, Suite 450 Rockville, MD 20850 For U.S. Department of Labor Employment and Training Administration 200 Constitution Ave., NW Room S-4231 Washington, DC 20210 ABSTRACT This report presents the results of a study on independent contractors (ICs) conducted in 1998-99. It begins with a description of ICs in the alternative workforce and definitions and tests used by federal and state agencies to classify them. Next, the motivations of employers to use ICs, the motivations of workers to become ICs, and selected industries where they predominate are described. Profiles of employees misclassified as independent contractors are described, and the results of an attempt to determine the extent of misclassification of employees as ICs and its effects on Unemployment Insurance (UI) trust funds are presented. Then the efforts of state administrators in dealing with ICs and other significant workforce issues related to ICs are described. Finally, the report presents the findings and recommendations of the study. Preface Planmatics is pleased to offer this final report titled “Study of Alternative Work Arrangements: Independent Contractors.” The project was funded under Department of Labor Contract No: K6878-8-00-80-30. The authors are Dr. Lalith de Silva, Mr. Adrian W. Millett, Mr. Dominic M. Rotondi, and Mr. William F. Sullivan. Ms. Elizabeth Fischer and Mr. Mark Sillings also contributed. The Department of Labor project officer for the study was Mr. Wayne Gordon. Acknowledgements A large number of people participated in the study over the past one and a half years and contributed to the results. At the U.S. Department of Labor, Mr. Wayne Gordon, the Project Officer directed the study and was constantly available to assist and encourage us. Dr. Esther Johnson, Dr. John Heinberg, Mr. Everette Hensley and Ms. Cindy Ambler provided assistance in designing and implementing the study, provided data, and offered useful comments and suggestions throughout the project. We wish to express our appreciation to the following individuals, who provided invaluable information and assistance, both during and after our visits to the various states. In California, cooperation was provided by Mr. Richard Curry, Ms. Kit Sun, Ms. Fran Yokota, Mr. James Legler, Mr. Bob Shute, Ms. Julie Gallagher, Mr. Timothy Dransart, Mr. Louis Barnett, Ms. Lynnda Waller, Ms. Linda Nicholson, and Ms. Deborah Bronow from the State of California Employment Development Department. We also met with Ms. Marylouise Zamora and Ms. Michelle Clabough from the State Worker’s Compensation Insurance Fund. In Florida, assistance was provided by Mr. Warner Sanford, Mr. Larry Harvell, Mr. Wayne Quigg, and Mr.Johnny Riff from the Florida Department of Labor and Employment Security. In Maryland, cooperation was obtained by Mr. Thomas Wendel, Mr. John McGucken, Secretary John O'Connor, Mr. Ken Richard, Ms. Ileana O’Brian, Ms. Elizabeth Trimble, Mr. Jonathan Krasnoff, Ms. Hazel Warnick, and Ms. Susan Bass from the State of Maryland Department of Labor, Licensing and Regulation and Mr. E.A. Mohler, the President of the Maryland and Washington DC AFL-CIO. Mr.Harry Friedman, Ms. Sue Petro and Ms. Cindy Burns provided the data. In New Jersey, cooperation was provided by Mr. Michael Malloy, Mr. Michael Tardiff, Mr. John Maroney, Ms. Dorothy Toth, Mr. Paul Kapalko, Mr. Bill Burns, Mr. William Suarz, Mr. Wayne Marlin, Mr. Frederick Cohen, Mr. Dominic Marchetti, Mr. Vincent Martorano, Ms. Mary Sieber, Mr. Charles Salmon, and Mr. James Phillips from the New Jersey Department of Labor. We also met with Mr. Jeff Stoller of the New Jersey Business and Industry Association, Mr. William Coyne of the New Jersey Capitol Regional Council, and Ms. Jean Bestafka of the Home Healthcare Services Staffing Association of New Jersey. In Washington, cooperation was obtained through Mr. Howard Nanto, Mr. Charles Sadler Mr. Graeme Sackrison and Mr. Kurt Malizio. As can be seen by the length of this list, they arranged many interviews for us. We interviewed Ms. Tanya Brewster, Mr. Michael Cobb, Mr. Jim Schodt, Mr. Robert Wagner, Ms. Tesa Wanamaker, Ms. Brenda Westfall, and Mr. Donald Wilson of the Washington State Employment Security Department. Mr. Wayne Godwin provided audit data. Mr. Norm Ericson and Ms. Teresa Morris of the Commissioner's Review Office; Mr. Bill Lemke, Mr. John Loreen and Mr. Skip Wilson of the Office of Administrative Hearings; Mr. Pat De Marco, Ms. Joyce Roper and Mr. Steve Victor of the Attorney General’s Office; Mr. Dale Zimmerman and Mr. Greg Mowat of the Department of Labor and Industries, and Mr. Gordon Wilson of the USDOL in Seattle were also interviewed. We also met with Mr. Harry Kepler of General Teamsters local union #174, Ms. Pam Crone of Unemployment Law Project, and Mr. Jonathan Rosenblum of Seattle Union Now (AFL-CIO). We are most appreciative of those individuals who participated in the study, whom we did not meet, but communicated by mail and follow-up phone calls. Everyone was most helpful. Their collaboration made the results rich. In Indiana, Minnesota, Ohio, and Wisconsin, cooperation was obtained through Mr. Bill Browne of region 5 of the US Department of Labor. In Indiana, Ms. Pamela Grenard provided the data from the Indiana Department of Workforce Development. In Minnesota, the data was provided by Mr. Thomas Willett, Mr. John Svigel, and Mr. Dennis Evans from the Minnesota Department of Economic Security, and Ms. Carolyn Ganz from the Minnesota Department of Labor and Industry. In Ohio, Mr. Brad Mayo and Ms. Joanne Davis of the Ohio Bureau of Employment Services provided the data. In Wisconsin, Mr. Edward Pyykonen of the State of Wisconsin Department of Workforce Development provided the data. In Colorado, Mr. Don Peiterson at the Colorado Department of Labor and Employment provided data. In Connecticut, Mr. Carl Olandt, Mr. Dan Metz, and Mr. Bennett Pudlin at the Connecticut Department of Labor provided data. In Nebraska, Mr. Gary Zook and Mr. Jim Kubovy of the Nebraska Department of Labor provided data. In New Mexico, Ms. Casandra Encinias, Mr. Dale Ripley, Ms. Connie Reischman and Mr. Jason Lewis of the State of New Mexico Department of Labor provided data. In Oregon, Ms. Jayne Martin and Mr. Dale Derouin of the State of Oregon Employment Department provided data. In Pennsylvania, Ms. Patricia Jante, Mr. Alan Williamson and Ms. Laura Reohr of the Pennsylvania Department of Labor and Industry provided data. In Texas, Mr. Mike Sheridan, Ms. Gloria Davis, and Ms. Margaret Shuping of the Texas Workforce Commission provided data. At the Bureau of Labor Statistics, Ms. Sharon Cohany shared data and information on BLS activities and the Current Population Survey Supplement with regard to independent contractors. We also met with interested parties at the following organizations: · AFL-CIO in Washington D.C. · Strategic services on Unemployment and Workers’ Compensation (UWC). · National Technical Services Association (NTSA). · National Office of the Interstate Conference of the Employment Security Agencies. · The National Council on Compensation Insurance. · Mr. Maurice Emsellem, and Ms. Kathy Rucklehaus of the National Employment Law Project. · Mr. Larry Norton of the Community Justice Project. · Mr. David West of Center for Changing Workforce. We thank everybody for his or her assistance. TABLE OF CONTENTS DEFINITIONS OF ALTERNATIVE AND NONSTANDARD WORK ARRANGEMENTS EXECUTIVE SUMMARY CHAPTER 1 INTRODUCTION ...............................................................................................................................1 1.1 POLICY AND ECONOMIC CONTEXT .................................................................................................................... 1 1.2 PURPOSE OF THE STUDY..................................................................................................................................... 4 1.3 DESIGN OF EVALUATION.................................................................................................................................... 5 CHAPTER 2 INDEPENDENT CONTRACTOR CLASSIFICATION .........................................................7 2.1 THE ALTERNATIVE WORKFORCE AND INDEPENDENT CONTRACTORS......................................................... 7 2.2 IMPLICATIONS OF THE CLASSIFICATION DIFFERENCES................................................................................. 12 2.3 LEGAL CLASSIFICATIONS OF INDEPENDENT CONTRACTORS....................................................................... 14 2.4 IMPLICATIONS OF THE VARIANCE IN CLASSIFICATION................................................................................. 23 CHAPTER 3 EMPLOYER DEMAND OR WORKER PREF ERENCE? ...................................................25 3.1 EMPLOYER DEMAND OR WORKER PREFERENCE?......................................................................................... 25 3.2 EMPLOYER MOTIVATION................................................................................................................................... 26 3.3 WORKER MOTIVATION...................................................................................................................................... 28 3.4 ECONOMIC AND SOCIAL ENVIRONMENT CONDUCIVE TO IC GROWTH...................................................... 31 CHAPTER 4 PROFILES OF MISCLASSIFIED INDEPENDENT CONTRACTORS AND THEIR
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