The Hidden Costs of Worker Misclassification in California Employment

When you’re hired for a job, you expect to be treated fairly. You expect to receive the wages you’ve earned, the benefits you’re entitled to, and the protections that come with being an employee. But what happens when your employer misclassifies you as an independent contractor instead of an employee? In California, worker misclassification is a pervasive issue that leaves thousands of workers vulnerable to exploitation, financial instability, and a lack of legal protections.

If this sounds familiar, you may have a legal case. Arshakyan Law fights for workers just like you, helping recover lost wages and benefits. Don’t let employers take advantage of you. Contact our Los Angeles County employment law attorneys to schedule your consultation and reclaim what’s rightfully yours.

What is Worker Misclassification?

Worker misclassification occurs when an employer labels a worker as an independent contractor instead of an employee, even though the worker meets the legal criteria for employee status. In California, the distinction between employees and independent contractors is governed by strict laws, including Assembly Bill 5 (AB5) and the ABC test. Under these laws, a worker is presumed to be an employee unless the employer can prove:

• The worker is free from the employer's control in performing their work.
• The work performed is outside the employer's usual business operations.
• The worker is customarily engaged in an independently established trade or business.

Failure to meet these criteria means the worker should be classified as an employee. Unfortunately, many employers either fail to follow this standard or deliberately misclassify workers to save money.

The Financial Toll on Workers

From a worker’s perspective, the most immediate and obvious cost of misclassification is financial. When you’re misclassified as an independent contractor, you lose out on critical benefits and protections that employees are entitled to under California law.

Lost Wages and Overtime Pay

As an employee, you’re entitled to at least the state minimum wage (currently $16.50 per hour in California) and overtime pay for hours worked beyond 8 hours in a day or 40 hours in a week. Independent contractors, however, are not guaranteed these protections. Many misclassified workers are paid a flat rate for their work, regardless of how many hours they put in. This often results in earning far less than the minimum wage or being denied overtime pay, even when working long hours.

No Reimbursement for Work-Related Expenses

Employees are entitled to reimbursement for necessary work-related expenses, such as tools, equipment, and travel costs. Independent contractors, on the other hand, are responsible for covering these expenses themselves. For workers in industries like construction, delivery, or rideshare driving, these costs can add up quickly, eating into already meager earnings.

Lack of Benefits

Employees are often eligible for benefits like health insurance, paid sick leave, and retirement plans. Independent contractors rarely receive these benefits, leaving workers to shoulder the full cost of healthcare and other necessities. This can lead to significant financial strain, especially for low-wage workers who are already struggling to make ends meet.

The Impact on Health and Safety

Worker misclassification doesn’t just hurt your wallet—it can also jeopardize your health and safety.

No Workers’ Compensation Coverage

In California, employers are required to provide workers’ compensation insurance to employees. This insurance covers medical expenses and lost wages if you’re injured on the job. Independent contractors, however, are not covered by workers’ compensation. If you’re misclassified and injured at work, you could be left with hefty medical bills and no income while you recover.

Lack of Workplace Protections

Employees are protected by workplace safety regulations enforced by agencies like Cal/OSHA. Independent contractors are not afforded the same protections, leaving them vulnerable to unsafe working conditions. For example, a misclassified construction worker might be forced to work without proper safety equipment or training, putting their life at risk.

The Long-Term Consequences

The hidden costs of misclassification extend far beyond your immediate financial and physical well-being. They can have long-term consequences that affect your future stability and opportunities.

Difficulty Accessing Unemployment Benefits

If you’re laid off or lose your job, employees are eligible for unemployment benefits to help them get by while they search for new work. Independent contractors are not eligible for these benefits, leaving misclassified workers with no safety net during periods of unemployment.

Challenges in Building a Financial Future

Without access to benefits like retirement plans or paid sick leave, misclassified workers often struggle to save for the future. This can make it difficult to buy a home, pay for education, or retire comfortably. Additionally, independent contractors are responsible for paying their own payroll taxes, which can lead to unexpected tax bills and financial hardship.

Limited Career Advancement Opportunities

Misclassified workers are often excluded from training programs, promotions, and other opportunities for career advancement that are available to employees. This can trap workers in low-paying, unstable jobs with little hope for upward mobility.

The Emotional and Psychological Toll

The stress and uncertainty caused by misclassification can take a significant toll on your mental health. Constantly worrying about making ends meet, dealing with unsafe working conditions, and feeling powerless to challenge your employer’s actions can lead to anxiety, depression, and burnout.

Moreover, many misclassified workers are afraid to speak up for fear of retaliation, such as being fired or blacklisted from future job opportunities. This creates a culture of silence that allows employers to continue exploiting workers with impunity.

The Broader Economic Impact

The hidden costs of worker misclassification extend beyond the individual and the business—they affect the economy as a whole.

Strain on Public Resources

When workers are misclassified, they often cannot access unemployment benefits or workers’ compensation. This shifts the financial burden to state programs, placing additional strain on public resources.

Reduced Tax Revenue

Misclassification often involves underreporting income or failing to pay taxes altogether. This reduces the tax revenue available to fund public services, impacting schools, infrastructure, and social programs.

Economic Inequality

Misclassification contributes to widening wage gaps and economic inequality. When workers are denied fair wages and benefits, they’re less able to support themselves and their families, creating a cycle of financial instability.

Reclaim Your Workplace Rights with Los Angeles County Employment Lawyers

Misclassification is not just a mistake - it’s a calculated move to deny workers their rights. At Arshakyan Law Firm, we believe in taking the power back. Every misclassified worker deserves their wages, benefits, and the protections that California labor laws guarantee.