United States Government Accountability Office

GAO Report to the Ranking Minority 

Member, Committee on Health, 

Education, Labor, and Pensions, 

U.S. Senate 

EMPLOYMENT 

ARRANGEMENTS 

Improved Outreach 

Could Help Ensure 

Proper Worker 

Classification 

July 2006 

 

GAO-06-656 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 2006

EMPLOYMENT ARRANGEMENTS

Improved Outreach Could Help Ensure 

Highlights of GAO-06-656, a report to the Proper Worker Classification 

Ranking Minority Member, Committee on 

Health, Education, Labor, and Pensions, 

U.S. Senate 

Millions of U.S. workers participate

in “contingent” employment, such 

as temporary or part-time work,

and not in permanent or full-time

jobs. The Department of Labor 

(DOL) enforces several labor laws 

to protect these and other workers, 

including the Fair Labor Standards 

Act (FLSA), which provides 

minimum wage, overtime pay, and 

child labor protections. In June 

2000, GAO reported that contingent 

workers lagged behind standard

full-time workers in terms of 

income, benefits, and workforce 

protections, and that some

employees do not receive worker 

protections because employers 

misclassified them as independent 

contractors. GAO was asked to

update this report by describing (1)

the size and nature of the 

contingent workforce, (2) the 

benefits and workforce protections 

provided to contingent workers,

and (3) the actions that DOL takes 

to detect and address employee

misclassification. We analyzed DOL 

survey data on contingent workers

and interviewed DOL officials. 

What GAO Recommends

GAO recommends that DOL (1) 

provide additional contact 

information to facilitate the

reporting of possible 

misclassification complaints, and 

(2) evaluate the extent to which

misclassification cases found 

through FLSA investigations are 

referred to other agencies and take

action to improve as needed. 

DOL generally agreed with both 

recommendations. 

Contingent workers constituted a relatively constant proportion of the total 

workforce from 1995 through 2005 and had diverse characteristics. While the 

population of the contingent workforce grew by an estimated 3 million 

workers during this time period, the proportion of contingent workers in the 

total workforce remained relatively constant at about 31 percent. In 2005, 

there were about 42.6 million contingent workers in the workforce. 

Contingent workers vary in terms of their demographic characteristics, 

industries, and occupations. For example, on average, contingent workers 

range in age from about 35 years for one category of temporary workers to 

about 48 years for self-employed workers. In addition, contingent workers 

are employed in a wide range of industries and occupations, including the 

services industry, construction, and retail trade. 

A smaller proportion of contingent workers than of standard full-time 

workers has health insurance or pension benefits, or is protected by key 

workforce protection laws, including laws designed to ensure proper pay 

and safe, healthy, and nondiscriminatory workplaces. While 72 percent of 

standard full-time workers received employer-provided health insurance in 

2005, the proportion of contingent workers who received employer-provided 

health insurance ranged from 9 to 50 percent, depending on the category of 

contingent worker. With regard to pension benefits, 76 percent of standard 

full-time workers reported working for an employer who offered a pension, 

whereas 17 to 56 percent of contingent workers reported working for an 

employer who offered a pension. One reason that contingent workers are 

less likely to receive protections is that some laws contain requirements that 

exclude certain categories of contingent workers. 

DOL detects and addresses misclassification of employees by investigating 

complaints, but does not always forward misclassification cases to other 

federal and state agencies. Some workers do not receive worker protections 

to which they are entitled because employers misclassify them as

independent contractors—a category of contingent workers excluded from 

many protections—when they should be classified as employees. DOL 

investigators detect and address employee misclassification primarily when 

responding to FLSA minimum wage and overtime pay complaints. DOL 

investigators examine whether a worker is an employee or an independent 

contractor to determine coverage under FLSA. DOL relies heavily on 

complaints from workers to enforce FLSA, but the FLSA workplace poster 

does not contain any information on employment classification or provide a 

telephone number for individuals to register complaints. Misclassification of 

employees may contribute to an FLSA violation or may violate laws enforced 

by other agencies, such as tax laws. DOL procedures require officials to 

share information with other federal and state agencies whenever 

investigators find possible violations of other laws. However, the district 

offices we contacted vary in how often they forward misclassification as a 

possible violation of other agencies’ laws. 

www.gao.gov/cgi-bin/getrpt?GAO-06-656.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Robert E. 

Robertson at (202) 512-7215 or 

robertsonr@gao.gov. 
Contents 

Letter 1

Results in Brief 3 

Background 5

Contingent Workers Constitute a Relatively Constant Proportion of 

the Workforce and Are Diverse 10 

A Smaller Proportion of Contingent Workers than Others Has 

Benefits or Is Covered by Key Workforce Protection Laws 14 

DOL Detects and Addresses Employee Misclassification through 

Investigations, but Offices We Studied Vary in How Often They 

Forward Misclassification Cases to Other Federal and State 

Agencies 26

Conclusions 34

Recommendations for Executive Action 35 

Agency Comments 36 

Appendix I Objectives, Scope, and Methodology 38 

Appendix II Establishing the Employment Relationship of 

Workers 43 

Appendix III Size and Characteristics of the Contingent 

Workforce 47 

Appendix IV Key Laws Designed to Protect Workers 51 

Appendix V Comments from the Department of Labor 56 

Appendix VI GAO Contact and Staff Acknowledgments 58 

Related GAO Products 59 

Page i GAO-06-656 Employment Arrangements
Tables 

Table 1: Key Federal and State Agencies That Can Be Affected by 

Employee Misclassification 8 

Table 2: Contingent Workers and the Total Employed Workforce 

(February 1995, February 1999, February 2005) 11 

Table 3: Workers with Annual Family Incomes below $20,000 

(February 2005) 14 

Table 4: Changes in the Size of the Contingent Workforce 47 

Table 5: Characteristics of Contingent Workers (February 2005) 48 

Figures 

Figure 1: Categories of Workers That GAO Considered Contingent 6 

Figure 2: Composition of the Contingent Workforce 

(February 2005) 12 

Figure 3: Workers with Health Insurance (February 2005) 16 

Figure 4: Workers with Employer-Provided Pensions 

(February 2005) 19 

Figure 5: Key Laws Designed to Protect Workers 22 

Page ii GAO-06-656 Employment Arrangements
Abbreviations 

BLS Bureau of Labor Statistics 

CPS Current Population Survey 

DOL Department of Labor 

EMPLEO Employment Education and Outreach 

ERISA Employee Retirement Income Security Act 

ESA Employment Standards Administration 

ETA Employment & Training Administration 

FLSA Fair Labor Standards Act 

FOH Field Operations Handbook

IRS Internal Revenue Service 

NLRA National Labor Relations Act 

NLRB National Labor Relations Board 

This is a work of the U.S. government and is not subject to copyright protection in the 

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other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page iii GAO-06-656 Employment Arrangements
United States Government Accountability Office

Washington, DC 20548 

July 11, 2006

The Honorable Edward M. Kennedy 

Ranking Minority Member 

Committee on Health, Education, 

 Labor, and Pensions 

United States Senate 

Dear Senator Kennedy: 

Millions of workers in the U.S. economy participate in some form of 

“contingent” employment, such as temporary or part-time work. While 

definitions of the contingent workforce vary, broadly defined, contingent 

workers are workers who do not have standard full-time employment, that 

is, are not wage and salary workers working at least 35 hours a week in 

permanent jobs. Contingent work arrangements often have the potential to

provide flexibility for employers and workers. However, such 

arrangements may also exclude some contingent workers from receiving 

key worker benefits and protections such as the guarantee of workers’ 

rights to safe and healthful working conditions, a minimum hourly wage 

and overtime pay, freedom from employment discrimination, and 

unemployment insurance. The Department of Labor (DOL) enforces a 

wide range of labor laws that provide protections to workers, including

the Fair Labor Standards Act (FLSA), which provides minimum wage, 

overtime pay, and child labor protections. Other federal and state agencies

enforce laws that provide workers with additional workforce benefits and

protections. 

In June 2000, we reported that contingent workers, as broadly defined, 

constituted almost 30 percent of the workforce and that compared with 

standard full-time workers, contingent workers lagged behind in terms of 

income and benefits.1

 We also reported that some workers do not receive

worker protections to which they are entitled because employers 

misclassify them as independent contractors—a category of workers that

is excluded from many protections—when they should be classified as 

employees. In its last comprehensive misclassification estimate, the 

 1

 GAO, Contingent Workers: Incomes and Benefits Lag Behind Those of Rest of Workforce, 

GAO/HEHS-00-76 (Washington, D.C.: June 30, 2000). 

Page 1 GAO-06-656 Employment Arrangements
Internal Revenue Service (IRS) estimated that 15 percent of employers 

misclassified 3.4 million workers as independent contractors in 1984, 

resulting in an estimated tax loss of $1.6 billion (or $2.72 billion in 

inflation-adjusted 2006 dollars2

) in Social Security tax, unemployment tax, 

and income tax. 

In this context, you asked us to update our work on contingent workers 

and review employee misclassification issues. Specifically, you asked us to

examine (1) the size and nature of the contingent workforce, (2) the 

benefits and workforce protections provided to contingent workers, and 

(3) the actions that DOL takes to detect and address employee 

misclassification. 

To respond to your request, we analyzed data from the Bureau of Labor 

Statistics’ (BLS) Current Population Survey (CPS), which is used to survey 

people about their work and workplace benefits, and a CPS supplement 

developed to collect information on the contingent workforce. We used 

this CPS contingent workforce supplement to produce estimates of 

characteristics of contingent workers, their receipt of health insurance, 

and their participation in pension programs. To ensure reporting 

consistency, we used the same definition of contingent workers that we 

used in our 2000 report. This definition included eight categories of 

contingent workers: agency temporary workers (temps), direct-hire temps, 

on-call workers, day laborers, contract company workers, independent 

contractors, self-employed workers, and standard part-time workers.3

 We 

interviewed BLS officials and other researchers about contingent worker 

issues. We also reviewed key workforce protection laws to determine 

coverage of contingent workers. To obtain information on DOL’s efforts to 

detect and address employee misclassification as part of FLSA 

enforcement, we reviewed DOL documents and interviewed DOL officials 

 2

 The $2.72 billion is intended to be an estimate of the magnitude of tax loss due to

misclassification in 2006 dollars—not an updated estimate. The actual tax loss due to 

misclassification in 2006 may be higher or lower based on the tax rates, the level of 

independent contractors used in various sectors of the economy, and the types and levels 

of misclassification observed in 2006. 

3

 Standard part-time workers are individuals who regularly work less than 35 hours a week 

for a particular employer and are wage and salary workers.

Page 2 GAO-06-656 Employment Arrangements
from headquarters, 3 of 5 regional offices, and 9 of 51 district offices.4

 We 

also reviewed literature and interviewed researchers about employee 

misclassification issues. We performed our work in accordance with 

generally accepted government auditing standards between July 2005 and 

June 2006. Appendix I provides detailed information on the scope and 

methodology of our work. 

Contingent workers constituted a relatively constant proportion of the 

total workforce from 1995 through 2005 and had diverse characteristics. 

While the population of the contingent workforce grew by an estimated 

3 million workers during this time period, the proportion of contingent 

workers in the total workforce remained relatively constant at about 

31 percent.5

 In 2005, there were about 42.6 million contingent workers in 

the workforce. Across categories, contingent workers vary in terms of 

their demographic characteristics. For example, on average, contingent 

workers range in age from about 35 years for direct-hire temps to about 

48 years for self-employed workers. While about two-thirds of standard 

part-time workers are female, females constitute about one-third of 

contract company workers. Contingent workers are employed in a wide 

range of industries and occupations, including the services industry, 

construction, and retail trade. 

Results in Brief 

A smaller proportion of contingent workers than of standard full-time 

workers has health insurance or pension benefits, or is protected by key 

workforce protection laws, including laws designed to ensure proper pay 

and safe, healthful, and nondiscriminatory workplaces. While 72 percent

of standard full-time workers received employer-provided health 

insurance in 2005, the proportion of contingent workers who received 

employer-provided health insurance ranged from 9 to 50 percent, 

depending on the category of contingent worker. When other sources of 

 4

 We selected the regional and district offices using a nonprobability sample—a sample in 

which some items in the population have no chance, or an unknown chance, of being 

selected. Results from nonprobability samples cannot be used to make inferences about a

population; thus, the information we obtained cannot be generalized to all regional and

district offices. 

5

 Estimates of the size and characteristics of the contingent workforce are based on CPS

sample data and are subject to sampling error. For example, the 95 percent confidence

intervals for percentages of the total workforce are within +/- 1 percentage point of the 

estimate itself. Appendix I contains information on the magnitude of sampling error for the

CPS estimates contained in this report. 

Page 3 GAO-06-656 Employment Arrangements
health insurance are taken into account, the proportional difference 

between contingent and standard full-time workers decreases 

substantially but is not eliminated. With regard to pension benefits, 

76 percent of standard full-time workers reported working for an employer 

who offered a pension, and 64 percent reported being included in their 

employer’s plan. In contrast, 17 to 56 percent of contingent workers 

reported working for an employer who offered a pension, and 4 to 

37 percent reported being included in their employer’s plan.

DOL detects and addresses misclassification of employees as independent 

contractors by investigating complaints, but does not always forward 

misclassification cases to other federal and state agencies. DOL 

investigators detect and address employee misclassification primarily 

when responding to FLSA minimum wage and overtime pay complaints. 

DOL investigators examine the employment relationship—whether a 

worker is an employee or an independent contractor—to determine 

whether workers are covered under FLSA. DOL relies heavily on 

complaints from workers to enforce FLSA, but the FLSA workplace 

poster—a principal means of communicating FLSA protections—does not 

contain any information on employment relationship or provide a 

telephone number for individuals to register complaints. While 

misclassification of an employee as an independent contractor is not a 

violation of FLSA, it may contribute to an FLSA violation if the employer

does not pay the minimum wage or overtime required by the act. In 

addition, employee misclassification may contribute to a violation of laws

enforced by other agencies, such as tax laws. DOL procedures require 

officials to share information with other federal and state agencies 

whenever investigators find possible violations of other laws. However, 

the district offices we contacted vary in how often they forward 

misclassification as a possible violation of other agencies’ laws. 

This report contains recommendations that DOL (1) revise its FLSA 

workplace poster to include additional contact information that would 

facilitate the reporting of potential employee misclassification complaints, 

and (2) evaluate the extent to which misclassification cases identified 

through FLSA investigations are referred to the appropriate federal or 

state agency, and take action to make improvements as necessary. In 

commenting on our draft report, DOL agreed with the first 

recommendation and agreed with the primary part of the second 

recommendation, but disagreed with one part of this recommendation. 

Regarding the second recommendation, DOL agreed with the value of 

sharing potential employee misclassification with appropriate federal and

state programs, but did not agree with a part of the draft recommendation 

Page 4 GAO-06-656 Employment Arrangements
that referral of cases should include notifying the employer that the 

misclassification case has been forwarded to the appropriate agency. After 

considering DOL’s position concerning this aspect of the draft 

recommendation, we deleted this part from the final recommendation. 

DOL also provided technical comments, which we incorporated in the 

report as appropriate. Our summary evaluation of the agency’s comments 

is on page 36. DOL’s comments are reproduced in appendix V. 

The term “contingent work” can be defined in many ways to refer to a 

variety of nonstandard work arrangements. Broadly defined, “contingent 

work” refers to work arrangements that are not long-term, year-round, fulltime employment with a single employer. For example, an employer may 

hire workers when there is an immediate and limited demand for their 

services, without any offer of permanent or even long-term employment. 

Temporary workers, independent contractors, and part-time workers are 

examples of contingent workers. In 2000, we reported our definition of 

contingent workers that we also used in this report.6

 Figure 1 shows this 

definition, which includes eight categories of contingent workers. 

Background 

 6

 Although we used data from the Contingent Work Supplement, we used a definition of

contingent worker different from the one used by BLS in its analysis of the data. As in our 

2000 review of contingent workers, we did not restrict our definition to include only 

workers with relatively short job tenure, but rather provided information on a range of

workers who could be considered contingent under different definitions. Although we 

believe that it is useful to consider the nature and size of the population of workers in jobs

of limited duration as well as their access to benefits, we also believe that it is useful to 

provide information according to categories that are more readily identifiable and mutually 

exclusive. Appendix I provides a more detailed description of GAO’s definition of

contingent workers. 

Page 5 GAO-06-656 Employment Arrangements
Figure 1: Categories of Workers That GAO Considered Contingent

Individuals who work for temporary employment agencies

and are assigned by the agencies to work for other 

companies (“client firms”), such as temporary workers

supplied to companies to fill in for full-time workers who are 

on vacation or to work on special projects

Individuals who work for companies that provide services to 

other firms under contract, such as security, landscaping, or 

computer programming services

Agency temporary 

workers (temps) 

Contract company 

workers 

Direct-hire temps

Independent 

contractors

On-call workers

Self-employed 

workers

Standard part-time 

workers

Source: GAO/HEHS-00-76. 

Individuals who get work by waiting at a place where 

employers pick up people to work for the day, such as

low-skilled construction workers

Temporary workers hired directly by companies to work for a

specified period of time, such as seasonal workers and 

workers hired to work on special projects

Individuals who obtain customers on their own to provide a

product or service (and who may have other employees

working for them), such as maids, realtors, child care 

providers, and management consultants

Individuals who are called to work only on an as-needed 

basis, such as substitute teachers and construction workers

supplied by union hiring halls

Self-employed workers who are not independent 

contractors, such as doctors and restaurant owners

Individuals who regularly work less than 35 hours a week 

for a particular employer and are wage and salary workers

Day laborers 

Research has shown that employers use contingent work arrangements for 

a variety of reasons. Employers may hire contingent workers to 

accommodate workload fluctuations, fill temporary absences, meet 

employee’s requests for part-time hours, screen workers for permanent 

Page 6 GAO-06-656 Employment Arrangements
positions, and save on wage and benefit costs, among other reasons.7

Previous analyses of data from the CPS Contingent Work Supplement have 

indicated that workers also take temporary and other contingent jobs for a 

variety of personal and economic reasons. For example, workers in 

various types of contingent jobs indicated that they (1) preferred a flexible

schedule to accommodate their school, family, or other obligations; 

(2) needed additional income; (3) could not find a more permanent job; or 

(4) hoped the job would lead to permanent employment.8

 Studies using 

data from the BLS National Longitudinal Survey of Youth show that events

such as the birth of a child or a change in marital status affect the 

likelihood of entering different types of employment arrangements and 

prompt some workers to enter contingent work arrangements.9

Concerns arise when employers misclassify workers as independent 

contractors, who are in a category of contingent workers excluded from 

certain worker protections. Employee misclassification occurs when an 

employer improperly classifies a worker as an independent contractor 

when the worker should be classified as an employee. In 2000, we 

reported that because most key workforce protection laws cover only 

workers who are employees, independent contractors and certain other 

contingent workers, such as self-employed workers, are, by definition, not 

covered. (See app. IV for a more detailed description of these key laws.) 

Misclassification of employees can affect the administration of many 

federal and state programs, such as payment of taxes and pension 

benefits. For example, if employers misclassify workers as independent

 7

 See Susan N. Houseman, “Temporary, Part-Time, and Contract Employment in the United

States: A Report on the W.E. Upjohn Institute’s Employer Survey on Flexible Staffing 

Policies” (November 1996, revised June 1997), and Susan N. Houseman, “Why Employers

Use Flexible Staffing Arrangements: Evidence from an Establishment Survey,” Industrial 

and Labor Relations Review (October 2001):149-170. 

8

 See Sharon R. Cohany, “Workers in Alternative Employment Arrangements,” Monthly 

Labor Review (October 1996): 31-45; Anne E. Polivka, “Into Contingent and Alternative 

Employment: By Choice?,” Monthly Labor Review (October 1996):55-74; Sharon R. Cohany, 

“Workers in Alternative Employment Arrangements: a Second Look,” Monthly Labor 

Review (November 1998):3-21; Steven Hipple, “Contingent Work: Results from the Second

Survey,” Monthly Labor Review (November 1998):22-35; Steven Hipple, “Contingent Work

in the Late-1990s,” Monthly Labor Review (March 2001):3-27. 

9

 Donna S. Rothstein, “Entry Into and Consequences of Nonstandard Work Arrangements,”

Monthly Labor Review (October 1996): 76-83, and Barbara A. Wiens-Tuers and Elizabeth T.

Hill, “How Did We Get Here from There? Movement into Temporary Employment,” Journal 

of Economic Issues (June 2002):303-311. 

Page 7 GAO-06-656 Employment Arrangements
contractors, then they may not be paying the payroll taxes required to be 

paid for employees. At the federal level, misclassification can reduce tax

payments, Medicare payments, and Social Security payments. At the state

level, misclassification can affect payments into state tax, workers’ 

compensation, and unemployment insurance programs. Table 1 shows key 

federal and state agencies that can be affected by employee 

misclassification issues. 

Table 1: Key Federal and State Agencies That Can Be Affected by Employee Misclassification

Entity Law

Areas potentially affected by employee 

misclassification

Fair Labor Standards Act Minimum wage, overtime, and child labor provisions

Family and Medical Leave Act Job-protected and unpaid leave 

U.S. Department of Labor 

Occupational Safety and Health Act Safety and health protections 

U.S. Department of Treasury–Internal 

Revenue Service 

Federal tax law, including: 

Federal Insurance Contributions Act 

Federal Unemployment Tax Act 

Self-Employment Contributions Act 

Federal income and employment taxes 

U.S. Department of Health and

Human Services 

Title XVIII of the Social Security Act 

(Medicare) 

Medicare benefit payments 

DOL/IRS/Pension Benefit Guaranty 

Corporation 

Employee Retirement Income Security 

Act 

Pension, health, and other employee benefit plans 

Title VII of the Civil Rights Act Prohibitions of employment discrimination based on 

race, color, religion, gender, and national origin 

Americans with Disabilities Act Prohibitions of discrimination against individuals 

with disabilities

Equal Employment Opportunity 

Commission 

Age Discrimination in Employment Act Prohibitions of employment discrimination against 

any individual 40 years of age or older 

National Labor Relations Board National Labor Relations Act The right to organize and bargain collectively 

Social Security Administration Social Security Act Retirement and disability payments 

DOL/state agencies Unemployment insurance law Unemployment insurance benefit payments 

State agencies State tax law State income and employment taxes 

State workers’ compensation law Workers’ compensation benefit payments 

Source: GAO analysis of laws. 

DOL may encounter employee misclassification while enforcing worker 

protection laws. DOL’s mission is to promote the welfare of job seekers, 

workers, and retirees in the United States by improving their working 

conditions, advancing their opportunities for profitable employment, 

protecting their retirement and health care benefits, helping employers 

find workers, strengthening free collective bargaining, and tracking 

Page 8 GAO-06-656 Employment Arrangements
changes in employment, prices, and other national economic 

measurements. In carrying out this mission, DOL enforces a variety of

worker protection laws, including those guaranteeing workers’ rights to 

safe and healthful working conditions, a minimum hourly wage and 

overtime pay, freedom from employment discrimination, and 

unemployment insurance. 

In particular, DOL’s Employment Standards Administration’s (ESA) Wage 

and Hour Division enforces FLSA. The Wage and Hour Division—with 

staff located in 5 regional and 72 district, area, and field offices throughout 

the country—conducts investigations of employers who have $500,000 or 

more in annual sales volume.10 In addition, the division conducts outreach 

efforts for employers and workers to ensure compliance with FLSA. 

District directors oversee investigators, who play a key role in carrying out

FLSA enforcement. Investigators are trained to investigate a wide variety

of workplace conditions and complaints and enforce a variety of labor 

laws in addition to FLSA.11 Regional and district offices conduct outreach 

to employers and workers through brochures, workplace posters, 

presentations or training sessions for individuals or groups, and Webbased information. 

FLSA—which provides minimum wage and overtime pay protections—

requires that employers pay those employees covered by the act at least 

the minimum wage and pay overtime wages when they work more than 

40 hours a week.12 FLSA requires that an employer-employee relationship 

exist for a worker to be covered by the act’s provisions. The act defines 

“employee” broadly as an individual employed by an employer. The U.S. 

Supreme Court has identified certain factors to be considered in 

determining whether a worker meets the FLSA definition of employee. 

Appendix II contains more information on establishing the employment 

relationship under FLSA. 

 10 In addition, other types of employers—such as hospitals and schools—are covered by

FLSA regardless of their annual sales volume. 

11 Complaints are a key component of DOL enforcement efforts under many federal labor 

laws. DOL enforcement generally relies on two types of information to identify potential 

violations: (1) complaints from individuals who believe they may have suffered a violation 

and (2) analysis of data to specifically target problematic industries or work sites. 

12 FLSA also includes record-keeping and child labor provisions. 

Page 9 GAO-06-656 Employment Arrangements
Contingent workers constituted a relatively constant proportion of the 

total workforce from 1995 through 2005 and had diverse characteristics. 

While the number of contingent workers grew by an estimated 3 million 

during this time period, the contingent proportion of the total workforce 

remained relatively constant. In 2005, there were about 42.6 million 

contingent workers in the workforce. The different categories of 

contingent workers vary in terms of demographic characteristics, 

industries, occupations, preferences for the type of job that they currently

hold, and incidence of low family income.13 Appendix III contains detailed 

information on changes in the size of the contingent workforce and 

characteristics of contingent workers. 

In 2005, an estimated 31 percent of the workforce could be considered to 

maintain a contingent work arrangement.14 As shown in table 2, while the 

number of contingent workers grew from 39.6 million workers in 1995 to 

42.6 million workers in 2005, contingent workers’ share of the total 

workforce remained relatively constant over this time period.15

Contingent Workers 

Constitute a 

Relatively Constant 

Proportion of the 

Workforce and Are 

Diverse 

Contingent Workers’ 

Proportion of the Total 

Workforce Has Changed 

Little over the Past Decade 

 13 GAO’s 2000 review of contingent workers used $15,000 as the family income threshold 

for defining “low family income.” This income level was selected because the BLS reports

family income in $5,000 increments, and $15,000 was the income level closest to and below 

the 1999 federal poverty threshold for a family of four ($17,028). We selected $20,000 as the 

family income threshold for “low family income” for this report because it was the income

level closest to the current federal poverty level. The 2004 federal poverty threshold for a 

family of four (the most current information published by the Bureau of the Census at the 

time this project was designed) was $19,307. 

14 Workforce characteristics are estimated from the CPS February 2005 Contingent Work 

Supplement. Percentage estimates based on the total workforce have 95 percent 

confidence intervals of within +/- 1 percentage point of the estimate itself. Appendix I

contains additional information and confidence interval ranges for other CPS estimates

presented in this report. 

15 Similarly, the proportions of the various categories of contingent workers changed little 

over this time period (see app. III). 

Page 10 GAO-06-656 Employment Arrangements
Table 2: Contingent Workers and the Total Employed Workforce (February 1995, February 1999, February 2005)

February 1995 February 1999 February 2005

Category of worker 

Estimated 

numbers of

workers (in

thousands) 

Estimated 

percentage of

the workforce

Estimated 

numbers of

workers (in

thousands)

Estimated 

percentage of

the workforce

Estimated 

numbers of

workers (in

thousands)

Estimated 

percentage of

the workforce

Contract company 

workers 652 0.5 769 0.6 813 0.6

Agency temps 1,181 1.0 1,188 0.9 1,217 0.9

On-call workers/day 

laborers 2,014 1.6 2,180 1.7 2,736 2.0

Direct-hire temps 3,393 2.8 3,227 2.5 2,972 2.1

Self-employed 

workers 7,256 5.9 6,280 4.8 6,125 4.4

Independent 

contractors 8,309 6.7 8,247 6.3 10,342 7.4

Standard part-time 

workers 16,813 13.6 17,380 13.2 18,360 13.2

Subtotal: 

contingent workers 39,618 32.2a

39,271 29.9a42,567 30.6

Standard full-time 

workers 83,589 67.8 92,222 70.1 96,385 69.4

Total workforce 123,207 100.0 131,493 100.0 138,952 100.0

Source: GAO analysis of data from the CPS February 1995, 1999, and 2005 Contingent Work Supplements. 

Note: We combined the on-call workers and day laborers categories because the definitions and 

characteristics of these workers are similar and the number of day laborers alone was not large 

enough to be statistically significant. 

a Percentages do not add up to subtotal because of rounding. 

Contingent Workers Are a 

Diverse Group 

The categories of contingent workers differ considerably in terms of their 

share of the contingent workforce. In 2005, standard part-time workers 

constituted the largest category (43 percent) and contract company 

workers constituted the smallest category (2 percent) of the contingent 

workforce (see fig. 2). 

Page 11 GAO-06-656 Employment Arrangements
Figure 2: Composition of the Contingent Workforce (February 2005) 

6% 

14% 

24% 

Source: GAO analysis of data from the CPS February 2005 Contingent Work Supplement. 

7% 

43% 

3% 

Agency temps

On-call workers/day laborers

Direct-hire temps

Self-employed workers

Independent contractors

Standard part-time workers

2% 

Contract company workers

Note: Actual estimated percentages do not add to 100 percent because of rounding. 

Contingent workers exhibit a wide range of demographic characteristics. 

For example, direct-hire temps (with a mean age of about 35 years16) were, 

on average, the youngest contingent workers in 2005, while self-employed 

workers (with a mean age of about 48 years17) were the oldest. An 

estimated 68 percent of standard part-time workers were female, while 

about 31 percent of contract company workers were female.18 Selfemployed workers had the highest percentage (81 percent) of white/nonHispanic workers, while agency temps had the smallest percentage 

(50 percent) of white/non-Hispanic workers. Standard part-time workers 

had the highest percentage (21 percent) of workers with less than a high 

school degree, while self-employed workers and independent contractors 

had the lowest percentages (8 percent). 

 16 The 95 percent confidence interval is from 34.1 to 36.3 years old. 

17 The 95 percent confidence interval is from 47.2 to 48.5 years old. 

18 The percentage estimates for individual categories of contingent workers have 95 percent 

confidence intervals of within +/- 10 percentage points, unless noted. See appendix I for 

additional information. 

Page 12 GAO-06-656 Employment Arrangements
Contingent workers are employed in a wide range of industries and 

occupations. Regarding industry, in 2005, the percentage of part-time 

workers employed in retail trade (38 percent) was greater than in other 

industries, the percentage of agency temps in business services 

(28 percent) was greater than in other industries, the percentage of directhire temps in educational services (28 percent) was greater than in other 

industries, and the percentage of independent contractors in construction 

(22 percent) was greater than in other industries. Regarding occupation, in

2005, the percentage of self-employed workers in management 

(29 percent) was greater than in other occupations, the percentage of 

agency temps in office and administrative support (25 percent) was 

greater than in other occupations, and the percentage of contract company 

workers in construction and extraction (20 percent) was greater than in 

other occupations. 

The extent to which contingent workers express a preference for a 

different type of employer or job also varies across the different categories 

of contingent workers. For example, in 2005, 59 percent of agency temps 

expressed a preference to work for a different type of employer. Similarly, 

48 percent of on-call workers/day laborers indicated that they would 

prefer a job where they worked regularly scheduled hours. In contrast, 

9 percent of independent contractors and 8 percent of self-employed 

workers indicated that they would prefer to work for someone else. 

The proportion of contingent workers reporting low family incomes varies 

considerably across the different categories of contingent workers. As 

shown in table 3, while 16 percent of the overall contingent worker 

population reported family incomes below $20,000 in 2005, the incidence 

of low family income ranged from 8 percent for self-employed workers 

(the same percentage as for standard full-time workers) to 28 percent 

among agency temps. The relatively high incidence of low family income 

among some groups of contingent workers may reflect a number of 

factors, including lower levels of educational attainment, lower number of 

hours worked, or employment in low-wage sectors of the economy. 

Page 13 GAO-06-656 Employment Arrangements
Table 3: Workers with Annual Family Incomes below $20,000 (February 2005) 

Category of worker 

Estimated number of 

workers with family 

incomes below $20,000 

Estimated percentage of 

workers with family 

incomes below $20,000a

Self-employed workers 382,484 8

Contract company workers 85,210b11

Independent contractors 952,924 11

Direct-hire temps 464,561 18

Standard part-time workers 2,963,389 19

On-call workers/day laborers 501,014 21

Agency temps 318,535b 28 

Subtotal: contingent workers 5,668,117 16 

Standard full-time workers 6,902,861 8

Total workforce 12,570,978 11

Source: GAO analysis of data from the CPS February 2005 Contingent Work Supplement. 

a The percentages in this table are based on valid responses only. 

b The 95 percent confidence interval for agency temps and for contract company workers are 

318,535 +/- 70,692, and 85,210 +/- 36,585, respectively. The 95 percent confidence intervals for 

totals for other categories of contingent workers are within +/- 20 percent of the estimate itself. 

A smaller proportion of contingent workers than of standard full-time 

workers has health insurance or pension benefits, or receives protections 

offered by key workforce protection laws, including ones designed to 

ensure proper pay and safe, healthy, and nondiscriminatory workplaces. A 

smaller proportion of contingent workers than of standard full-time 

workers has employer-provided health insurance coverage. When other 

sources of health insurance are taken into account, the difference between 

contingent and standard full-time workers decreases, but it remains the 

case that a smaller proportion of contingent workers is insured. In 

addition, a smaller proportion of contingent workers than of standard fulltime workers has employers who offer pension plans or is included in 

employer-provided plans. Finally, contingent workers are less likely than 

standard full-time workers to receive protections offered by key 

workforce protection laws. Some laws contain requirements that exclude 

certain categories of contingent workers or contain certain time-in-service 

requirements that make it difficult for them to be covered. In addition, in 

cases where contingent workers have more than one employer, it is 

difficult to determine which employer is responsible for providing workers 

with workforce protections. Appendix IV contains a detailed description 

of the key workforce protection laws. 

A Smaller Proportion 

of Contingent 

Workers than Others 

Has Benefits or Is 

Covered by Key 

Workforce Protection 

Laws 

Page 14 GAO-06-656 Employment Arrangements
The proportion of contingent workers receiving health insurance is 

smaller than the proportion of standard full-time workers receiving health

insurance. Overall, an estimated 13 percent of contingent workers 

received health insurance through their employer in 2005, compared to 

72 percent of standard full-time workers. As shown in figure 3, the share of

contingent workers receiving employer-provided health insurance ranged 

from 9 percent for agency temps to 50 percent for contract company 

workers.19

A Smaller Proportion of 

Contingent Workers than 

Others Receives Health 

Insurance 

 19 Workers who do not have employers are not included in the questions on employer 

provided health insurance in the CPS February 2005 Contingent Work Supplement. All 

workers in the “self-employed” category, and most workers in the “independent contractor” 

category, do not have employers and were excluded from our analysis of employerprovided health insurance. 

Page 15 GAO-06-656 Employment Arrangements
Figure 3: Workers with Health Insurance (February 2005) 

0 

10 

20 

30 

40 

50 

60 

70 

80 

90 

100 

Standard full-time 

workers

Contract company 

workers

Self-employed 

workersa 

Standard part-time 

workers

Independent 

contractorsa 

Direct-hire temps

On-call workers/day 

laborers

Agency temps

Percentage of workers

Source: GAO analysis of data from the CPS February 2005 Contingent Work Supplement. 

Catagory of worker 

Estimated percentage of workers with health insurance from any sourceb

Estimated percentage of workers with health insurance through their employerb

41 

9 

66 

24 

71 

25 

72 

75 

19 

80 81 

50 

87 

72 

a

 Most workers in these categories do not have an employer and were excluded in our analysis of 

employer-provided health insurance. 

b

 For this figure, the population of contingent workers is defined as all those respondents who gave a 

valid response to the question “Do you receive health insurance from any source?” The percentages 

reported above are based on this population. 

Although the proportion of contingent workers who received health 

insurance increased significantly when other sources of health insurance 

were taken into account, a smaller proportion of contingent workers than

of standard full-time workers received health insurance from any source.

Overall, about 73 percent of contingent workers received health insurance

through any source in 2005, compared to 87 percent of standard full-time 

workers. The share of contingent workers who received health insurance 

through any source ranged from 41 percent among agency temps to 

81 percent among contract company workers. As might be expected, a 

smaller proportion of workers with low family incomes received health

Page 16 GAO-06-656 Employment Arrangements
insurance than of workers of all income levels.20 Overall, the highest 

percentage of contingent workers who had health insurance through a 

source other than their employer received it from their spouse’s health 

insurance plan. Contingent workers also reported receiving health 

insurance through other family members’ plans, plans offered through 

other or previous jobs, direct purchase, or participating in Medicare or 

Medicaid programs. 

Workers may lack access to employer-provided health insurance for a 

number of reasons, including electing not to participate in an available 

plan, having an employer who does not offer a health insurance plan, or 

being ineligible for their employer’s plan if one is offered. Just over half of 

workers—both contingent and standard full-time—who lacked employerprovided health insurance coverage in 2005 worked for an employer who 

offered health insurance to some of its employees. Not all workers 

reported being able to participate in their employer’s health insurance 

plan. An estimated 38 percent of the contingent workers in this group 

reported that they could participate in their employer’s health insurance 

plan if they wanted to, compared to 81 percent of standard full-time 

workers. Both contingent and standard full-time workers reported several 

reasons for not participating in health insurance plans offered by their 

employer, including having coverage through another plan and the 

expense of their employer’s plan. 

Some states and professional associations have developed health 

insurance programs that help contingent workers access health care. For 

example, Massachusetts recently passed legislation that will make health

insurance available to all residents of the state, including contingent 

workers such as part-time workers, contractors, and self-employed 

workers. This new law provides for health insurance premium assistance 

for low-income workers as well as low-cost policies available for purchase 

in the private market. In addition, Maine recently created the Dirigo 

program, which provides low cost health insurance to self-employed 

workers and workers without employer-sponsored insurance. Similarly, 

New York’s Healthy NY program helps uninsured workers, including selfemployed workers, who earn too much to qualify for Medicaid access 

 20 In 2005, 49 percent of contingent workers with low family incomes received health 

insurance from any source, as compared to 73 percent of contingent workers of all income

levels. Similarly, 9 percent of contingent workers with low family incomes received 

employer-provided health insurance, as compared to 13 percent of contingent workers of 

all income levels. 

Page 17 GAO-06-656 Employment Arrangements
comprehensive health insurance. Professional associations are also 

creating health plans to serve contingent workers. For example, the HR 

Policy Association—a nonprofit organization of senior human resources 

executives of Fortune 500 companies—recently brought major health 

insurers and large companies together to create the National Health 

Access program. This program provides a range of low-cost health plans to 

part-time, seasonal, and temporary workers, as well as independent 

contractors at participating companies who are ineligible for the 

companies’ traditional health plans. While these public and private 

initiatives are relatively new and long-term outcomes have yet to be 

determined, the programs have succeeded in expanding health insurance 

options to some contingent workers. 

A Smaller Proportion of 

Contingent Workers than 

Others Has Access to 

Employer-Provided 

Pensions 

A smaller proportion of contingent workers than of standard full-time 

workers has employers who offer pensions or is included in their 

employer’s pension plans.21 Overall, 38 percent of contingent workers 

reported having employers who offered a pension in 2005, compared to 

76 percent of standard full-time workers. Similarly, while 17 percent of 

contingent workers reported being included in their employers’ pension 

plan, 64 percent of standard full-time workers reported being included in 

such plans. As shown in figure 4, with the exception of agency temps, 53 to

56 percent of the contingent workers in other categories reported having

employers who offered pension plans.22 The percentage of contingent 

workers who were included in employer-provided pension plans ranged 

from 4 percent for agency temps to 37 percent for contract company 

workers. 

 21 The CPS classifications regarding access to employer-provided pensions are sometimes

described in different terms. For example, the CPS questionnaire asks workers if their 

employer “offers” a pension plan to any of its employees, and if they are “included” in this

plan. In a past GAO report, GAO has used other terms to describe access to employerprovided pensions. For example, GAO has indicated that employers can “sponsor” a 

pension plan (similar to “offering” a plan) and workers can be “covered” by a plan (similar 

to being “included” in a plan). See GAO, Pension Plans: Characteristics of Persons in the 

Labor Force without Pension Coverage, GAO/HEHS-00-131 (Washington, D.C.: Aug. 22, 

2000). 

22 Most workers in the self-employed and independent contractor categories do not have 

employers and were excluded from our analysis of employer-provided pensions. 

Page 18 GAO-06-656 Employment Arrangements
Figure 4: Workers with Employer-Provided Pensions (February 2005)

0 

10 

20 

30 

40 

50 

60 

70 

80 

90 

100 

Standard full-time 

workers

Direct-hire temps

Contract company 

workers

On-call workers/day 

laborers

Standard part-time 

workers

Agency temps

Percentage of workers

Source: GAO analysis of data from the CPS February 2005 Contingent Work Supplement. 

Catagory of workera 

Estimated percentage of workers who have an employer who offers a pension planb

Estimated percentage of workers who are included in their employer’s pension planb

17 

4 

53 

23 

55 

29 

55 56 

18

76 

64 

37 

a Because workers in the self-employed category, and most workers in the independent contractor 

category, do not have employers, they were not included in this figure. 

b For this figure, the population of contingent workers is defined as all those respondents who gave a 

valid response to the question “Do you work for an employer who offers a pension plan?” The

percentages reported above are based on this population. 

Among contingent workers with employers who offered pension plans, the 

most frequently reported reasons for not being included in the plan were

those related to eligibility. For example, these workers reported that they 

were not allowed to join the plan, they had not worked enough hours or 

weeks, or they had not worked long enough to be eligible. 

In addition to employer-provided pension plans, other types of tax 

deferred retirement accounts (such as individual retirement accounts and 

Keogh plans) may offer workers an opportunity to save for retirement. A 

larger proportion of self-employed workers and independent contractors 

Page 19 GAO-06-656 Employment Arrangements
than of other categories of contingent workers reports having other types 

of tax deferred retirement accounts.23 For example, 45 percent of selfemployed workers and 42 percent of independent contractors, compared 

to 16 percent of standard full-time workers, reported having such accounts 

in 2005. 

Contingent workers with low family incomes have less access to 

employer-provided pension benefits than workers of all income levels. 

Overall, 29 percent of contingent workers with low family incomes 

reported having employers who offered pension plans in 2005; 7 percent of 

contingent workers with low family incomes reported being included in

such plans. Contingent workers with low family incomes commonly 

reported that they were not included in their employer’s pension plan for 

reasons related to eligibility; for example, they were not allowed to join 

the plan, they had not worked enough hours or weeks, or they had not 

worked long enough to be eligible. 

 23 Most workers in the independent contractor category were self-employed. 

Page 20 GAO-06-656 Employment Arrangements
Contingent workers who are employees are generally protected under key 

laws designed to protect workers, but certain categories of contingent 

workers—such as independent contractors and self-employed workers—

may be excluded from coverage under these laws. While most of the key 

worker protection laws do not distinguish between types of employees 

(i.e., contingent and standard full-time employees), some laws contain 

requirements that exclude certain categories of contingent workers or 

contain certain time-in-service requirements that make it difficult for them

to be covered.

24 In addition, because these laws are based on the 

traditional employer-employee relationship, they generally cover only 

workers who are employees; independent contractors and self-employed 

workers, therefore, are not covered. According to the 2005 Contingent 

Work Supplement, 10.3 million individuals are independent contractors; 

these individuals would not be covered by these workforce protection 

laws. 

Some Categories of 

Contingent Workers Are 

Not Covered by Key Laws 

Designed to Protect 

Workers

When employers have misclassified workers as independent contractors, 

workers may need to go to court to establish their employee status and 

their eligibility for protection under the laws. In addition, DOL may bring a 

lawsuit on behalf of the worker or group of workers to require that the 

employer provide the benefit or protection under the law. As shown in 

figure 5, the key workforce protection laws cover a wide range of issues. 

 24 All of the key laws designed to protect workers have some exclusions, such as exclusions 

for small businesses, that apply to both contingent workers and standard full-time workers. 

We did not, however, examine whether contingent workers are disproportionately affected 

by these exclusions. 

Page 21 GAO-06-656 Employment Arrangements
Figure 5: Key Laws Designed to Protect Workers 

Establishes minimum wage, overtime, and child labor standards

Requires employers to allow employees to take up to 12 weeks of 

unpaid, job-protected leave for medical reasons related to a family 

member’s or the employee’s own health 

Fair Labor 

Standards Act 

Family and Medical 

Leave Act 

Employee Retirement 

Income Security Act 

Consolidated Omnibus

Budget Reconciliation Act 

Health Insurance Portability 

and Accountability Act 

Title VII of the 

Civil Rights Act 

Americans with 

Disabilities Act 

National Labor 

Relations Act 

Age Discrimination in 

Employment Act 

Unemployment Insurance 

Workers’ Compensation 

Source: GAO analysis of laws. 

Requires employers to maintain a safe and healthy workplace for their 

employees and requires employers and employees to comply with all 

federal occupational health and safety standards

Establishes uniform standards for employee pension and welfare 

benefit plans, including minimum participation, accrual, and vesting 

requirements; fiduciary responsibilities; and reporting and disclosure 

requirements

Requires employers to allow employees and their family members who 

would lose coverage under employer-sponsored group health plans as

a result of certain events, such as being laid off from or quitting their 

jobs, to continue coverage at their own expense for a limited time 

Guarantees the availability and renewability of health insurance 

coverage for certain individuals and limits the use of preexisting 

condition restrictions

Guarantees the right of employees to organize and bargain collectively 

Protects employees 40 years of age or older from discrimination based 

on age 

Protects employees from discrimination based on disability 

Protects employees from discrimination based on race, color, religion, 

sex, or national origin 

Pays benefits to workers in covered jobs who become unemployed and 

meet state-established eligibility rules

Provides benefits to injured workers while limiting employers’ liability 

strictly to workers’ compensation payments

Occupational Safety 

and Health Act 

Page 22 GAO-06-656 Employment Arrangements
Certain categories of contingent workers, such as temporary, on-call, and 

part-time workers, are not covered by some of the laws designed to 

protect workers. For example, the Family and Medical Leave Act requires 

workers to have worked for the same employer at least 12 months and a 

minimum of 1,250 hours during the past 12 months to be covered. These 

conditions decrease the likelihood that workers who are temporary, oncall, or part-time will be covered. Although employers are not required to 

provide pension or health care plans to their employees, when plans are 

offered, the Employee Retirement Income Security Act (ERISA) has rules 

that govern which employees must be included in the plans in order to 

qualify for special tax treatment. For example, ERISA allows employers to 

exclude workers who have worked less than 1,000 hours in a 12-month 

period from entering their pension plans. ERISA also allows employers to 

exclude employees who have worked for the company less than 3 years as 

well as part-time and seasonal employees from the count of employees 

who must be included in self-insured medical plans and group term life 

insurance plans. As a result, some temporary, on-call, and part-time 

workers may not be included in their employers’ benefit plans. These 

exclusions are intended to strike a balance between providing benefits to 

workers and not be unduly burdening employers. For example, the 

exclusions in ERISA were enacted to recognize that it may be impractical

or too costly for employers to include all short-term employees in their 

pension plans. 

Some laws have exemptions for portions of certain industries or types of 

employers that may disproportionately affect contingent workers. For 

example, FLSA exempts all agricultural employers from the overtime pay 

requirement and exempts agricultural employers who do not use more 

than 500 days of labor in any calendar quarter from the minimum wage 

requirement. These exemptions affect some categories of contingent 

workers more than standard full-time workers because a greater 

proportion of these contingent workers is in the agriculture industry; for 

example, an estimated 11 percent of self-employed workers, 2 percent of 

on-call workers and day laborers, 2 percent of independent contractors, 

and 1 percent of direct-hire temporary workers are employed in 

agriculture, compared with 1 percent of standard full-time workers. 

Similarly, the nature of contingent work makes it difficult for some 

contingent workers to meet state eligibility requirements for 

unemployment insurance. Temporary and part-time workers may not meet 

the minimum earnings requirements, which vary by state, and these 

workers may have difficulty meeting the rules governing job loss because 

they have less flexibility when the circumstances of their jobs change. 

Page 23 GAO-06-656 Employment Arrangements
For example, temporary workers who choose this type of work in order to 

meet family obligations or to attend school might be more likely to quit if 

their employer changed the job location or required them to work different 

hours. Nevertheless, they would be ineligible for unemployment insurance 

benefits in many states because they voluntarily quit without good cause.25

In addition, contingent workers can find it difficult to meet continuing 

eligibility requirements.26

Some contingent workers, such as temporary or contract workers, may 

also find it difficult to meet the requirements of the National Labor 

Relations Act (NLRA) for joining an existing bargaining unit or forming a 

new bargaining unit. For example, under the act, temporary workers 

wanting to join an existing collective bargaining unit at a work site must 

first demonstrate that they have a “sufficient community of interest” with

the permanent workers in the bargaining unit.27 In 2004, the National Labor 

Relations Board (NLRB) overturned a decision made in 2000, and required 

consent from both the user and supplier employer before temporary 

employees could join an existing bargaining unit.28 The 2004 decision made 

it more difficult for temporary and leased employees to join unions and 

bargain collectively. Contingent workers may also find it difficult to form 

new collective bargaining units. For example, temporary workers and day 

laborers may find it difficult to form bargaining units because they do not

work at one location or with one employer long enough to identify with a 

particular group of workers and organize a union. In addition, some 

worker advocacy groups maintain that contract company workers have 

difficulty forming new collective bargaining units because employers that 

use contract company workers may cancel contracts and contract with 

other companies when workers attempt to unionize. 

 25 Applicants are generally disqualified from receiving benefits when job loss is due to

voluntary separation without good cause, although the definition of “good cause” varies

from state to state. 

26 According to a report by the National Employment Law Project (“Part Time Workers and 

Unemployment Insurance,” March 2004), unemployed workers who limit their search for

new work to only part-time jobs are denied unemployment benefits in many states because 

workers are not available for full-time employment. Since 2001, 24 states and the U.S. 

Virgin Islands maintain restrictive rules regarding part-time unemployment insurance 

eligibility.

27 A “sufficient community of interest” includes factors such as common supervision, 

working conditions, and interest in the unit’s wages, hours, and conditions of employment.

28 M.B. Sturgis, 331 NLRB 1298 (2000) and H.S. Care L.L.C., 343 NLRB No.76 (2004). 

Page 24 GAO-06-656 Employment Arrangements
In some cases it is difficult to determine which employer is responsible for 

providing workers with workforce protections because some contingent

workers have more than one employer. In these cases, employers may be 

(1) an intermediary, such as a temporary employment agency, contract 

company, or leasing company; (2) the client firm that obtains the workers 

through the intermediary; or (3) both the intermediary and the client firm. 

Because it is often difficult in these cases to determine which employer is

liable to provide workers with workforce protections, litigation may be 

necessary to resolve this issue. 

Incorrect Employment 

Relationship May Result in 

Lack of Worker 

Protections 

Even in cases where there is only one employer involved, employers 

sometimes classify workers improperly, primarily by designating some 

workers as independent contractors when, in fact, they are more 

appropriately considered employees. Moreover, employers have economic 

incentives to misclassify employees as independent contractors because 

employers are not obligated to make certain financial expenditures for 

independent contractors that they make for employees, such as paying 

certain taxes (Social Security, Medicare, and unemployment taxes), 

providing workers’ compensation insurance, paying minimum wage and 

overtime wages, or including independent contractors in employee benefit 

plans. 

In addition, the tests used to determine whether a worker is an 

independent contractor or an employee are complex, subjective, and differ 

from law to law. For example, the NLRA, the Civil Rights Act, FLSA, and 

ERISA each use a different definition of an employee and various tests, or 

criteria, to distinguish independent contractors from employees.29 (See 

app. II for more information on employment relationship.) 

 29 See app. IV for descriptions of the tests used under each law.

Page 25 GAO-06-656 Employment Arrangements
DOL detects and addresses employee misclassification when enforcing the 

FLSA minimum wage and overtime pay provisions. As part of its FLSA 

investigation process, DOL examines the employment relationship—

whether a worker is an employee or an independent contractor—to 

determine which workers are covered. Investigators use various methods 

to test the employment relationship of workers, including interviewing 

employers and workers, reviewing payroll and related documents, and 

touring work sites. While misclassification alone is not an FLSA violation,

it may contribute to FLSA violations or violations of other laws, such as 

tax violations. DOL’s outreach efforts provide some information to 

employers and workers on employee misclassification issues. DOL 

procedures require officials to share information with other federal and

state agencies whenever investigators find possible violations of other 

laws. However, the district offices that we contacted vary in how often 

they forward misclassification cases as a possible violation of other 

agencies’ laws. 

DOL relies on complaints as a primary way to identify potential violations 

for investigation.30 All FLSA investigations of minimum wage and overtime 

pay complaints begin with an examination of workers’ employment 

relationship because FLSA applies only to employees, not to independent

contractors. If investigators determine that a worker is an employee and 

not an independent contractor, they continue with their FLSA 

investigation to determine whether the employer has provided the 

minimum wage and overtime pay required by the act. 

DOL Detects and 

Addresses Employee 

Misclassification 

through 

Investigations, but 

Offices We Studied 

Vary in How Often 

They Forward 

Misclassification 

Cases to Other 

Federal and State 

Agencies 

Investigators Determine 

Workers’ Employment 

Relationship 

DOL’s Field Operations Handbook (FOH) provides investigators with 

statutory interpretations and investigation procedures regarding the 

employment relationship required for FLSA to apply. It also describes the 

Supreme Court factors and explains how to apply them to test 

employment relationship. For example, the Supreme Court factors address 

whether the worker uses his or her own tools or equipment and whether 

the worker can decide which hours to work. Appendix II contains more 

information on the employment relationship. According to DOL officials, 

 30 Complaints are a key component of DOL enforcement efforts under FLSA. DOL 

enforcement of FLSA generally relies on two types of information to identify potential 

violations: (1) complaints from individuals who believe they may have suffered a violation 

and (2) analysis of data to specifically target problematic industries or work sites. 

Page 26 GAO-06-656 Employment Arrangements
investigators rely on their professional judgment when applying the 

Supreme Court factors. Investigators receive classroom training and onthe-job mentoring on the Supreme Court factors and techniques for 

applying the factors. In their training, they are taught to identify all the

relevant factors and make a full, balanced assessment of the facts of each 

case.31

Investigators may identify possible employee misclassification at different

points during the investigation. According to DOL officials, 

misclassification issues may come up during the initial conference with 

the employer or during an investigator’s review of records to determine 

whether an employer had classified workers as employees or independent 

contractors. At the initial conference with the employer, investigators ask 

employers about the nature of their work, annual dollar volume of 

business, the number of workers, and how workers are paid, and they 

request payment documents, such as payroll records, time cards, and W-2 

forms. While it is standard practice for investigators to review payroll and 

other records related to wages and employment, investigators do not 

necessarily review contracts or 1099 forms used to pay independent 

contractors unless they have a reason to suspect possible 

misclassification. 

Investigators may have reason to suspect misclassification stemming from 

the complaint that initiated the case or their knowledge of potential 

misclassification in that industry. In these cases, the investigator would 

ask employers about whether they contract any work and how they 

classify their workers. For example, according to DOL officials, if an 

investigator was conducting an investigation of a large drywall employer, 

then the investigator would probably spend a large amount of time 

pursuing independent contractor issues because misclassification has 

been a problem in the past with construction contractors subcontracting 

work to drywallers, roofers, electricians, and carpenters. In other cases 

where the investigator has no knowledge about potential misclassification, 

the employer’s responses at the initial conference may raise questions. For 

 31 In 2005, DOL began an “Off-the-Clock” initiative to identify employers who do not

compensate workers for all the hours that they work and who may not keep accurate wage

and employment records for their workers (also referred to as “off the books”). Although 

the focus is off-the-clock work, this effort may help detect employee misclassification. This

initiative includes training, outreach, and investigation. The investigator training includes a 

section on employment relationship, with questions and scenarios about how to determine

whether a worker is an independent contractor or an employee. 

Page 27 GAO-06-656 Employment Arrangements
example, if the employer had millions of dollars in annual business but 

only two employees, then the investigator would likely ask further 

questions about the employment relationship of any other workers. In 

addition, DOL officials told us that investigators compare payroll records 

with the work process identified by the employer to see if there are any

gaps. For example, investigators would need to follow up with employers 

who describe work processes that required many workers but had no 

employees listed on the payroll. Such a scenario could indicate that 

employers had misclassified workers as independent contractors who 

were not listed on the payroll. 

Investigators may learn about employment relationship when interviewing 

workers to verify the employer’s payroll and time records or to identify 

workers’ duties in order to determine whether FLSA applies. According to

DOL officials, an investigator would not ask directly whether the worker is 

an independent contractor or an employee; instead, an investigator would 

ask questions to determine whether the worker is an employee or an 

independent contractor. For example, an investigator would ask whether 

workers set their own work hours or use their own equipment on the 

job—indications that workers may be independent contractors, not 

employees. 

Investigators may obtain additional information on employment 

relationship while touring an employer’s establishment. During a tour, 

investigators can compare their observations about employment 

relationship in the work environment to the information from the records 

and interviews with employers and workers. Specifically, investigators can

observe control issues, such as whether workers are supervised and 

provided with supplies and equipment. For example, if an apartment rental 

complex treats its maintenance workers as independent contractors, then 

the investigator would observe who provides the plumbing supplies and 

paint—the employer or the workers—to help determine whether workers 

are independent contractors or employees. Also, a tour can identify 

potential misclassification issues for an investigator to follow up on. For 

example, if the payroll records show that the employer has 10 employees 

but the investigator sees 15 workers during the tour, then the investigator 

will conduct further interviews and record review to determine whether 

these other 5 workers are employees or independent contractors. 

Because employee misclassification is not a violation of FLSA, 

investigators are not required to discuss misclassification identified during 

FLSA investigations with employers or to include it in their investigation 

report. According to DOL officials, however, an investigator may discuss 

Page 28 GAO-06-656 Employment Arrangements
misclassification with the employer during the investigation and may note

instances of misclassification in the investigation report. In discussing a 

misclassification case with the employer, the investigator would explain 

that the workers should be classified as employees, not independent 

contractors, and that the employer may be violating other laws

administered by other agencies, such as tax laws or workers’ 

compensation laws. Specifically, investigators would explain to the 

employer how they applied the Supreme Court factors in determining that 

the workers were employees, not independent contractors. DOL officials 

said that investigators would provide employers with publications and fact 

sheets on employment relationship if they identified misclassification 

during an investigation. In addition, the investigators may mention 

employee misclassification in their final investigation report that 

summarizes the facts of the investigation. According to DOL officials, if 

the investigators included misclassification in the case report, it would be 

mentioned as an underlying reason for a minimum wage or overtime 

violation. However, investigation reports do not always include the reason

for the violation. 

Employee 

Misclassification, though 

Not an FLSA Violation, 

May Contribute to FLSA or 

Other Violations 

Employee misclassification alone is not a violation of FLSA, but may 

contribute to FSLA minimum wage and overtime pay violations or 

violations of tax, workers’ compensation, or unemployment insurance 

laws.32 DOL investigations have identified FLSA violations associated with

employee misclassification. For example, one misclassification case 

involved a valet parking company located in Arizona that provided 

services to local restaurants, sports venues, hotels, and theaters. In 2004, 

this company paid $66,947 in minimum wage and overtime pay back wages 

to 262 employees who had been misclassified as independent contractors. 

When reviewing the employment relationship, the DOL investigator found 

that the services provided by these workers were integral to the business, 

and that the employer had imposed strict policies and procedures to 

follow and told them when they would work, where they would work, 

what their pay rate would be, and what uniforms they would wear. The 

investigator determined that the workers were not required to use 

initiative, judgment, or foresight to be successful as independent 

 32 According to DOL officials, in some cases, misclassification may be considered an FLSA 

record-keeping violation, but there are no penalties for record-keeping violations under

FLSA. 

Page 29 GAO-06-656 Employment Arrangements
contractors; did not have any investment in facilities or equipment; and 

were not operating to make a profit.

Another misclassification case involved a chicken-processing company 

based in California that contracted out its deboning operations to a 

subcontractor. In 2005, DOL investigators found that the subcontractor 

had misclassified as independent contractors the employees he hired to 

work at this deboning plant. The subcontractor violated FLSA when he 

failed to meet payroll for 2 weeks, pay minimum wages and overtime pay, 

and keep adequate payroll records. The subcontractor also illegally

deducted the cost of aprons, gloves, hair nets, and other required 

equipment from workers’ paychecks. When the subcontractor went 

bankrupt, the contractor agreed to cover the back wages due—$40,000 

owed to 59 workers—although the contractor was not legally required to

do so. 

DOL officials told us that their investigators have encountered cases 

where employers classified workers as independent contractors instead of 

employees to avoid paying proper wages under federal and state wage 

laws or to avoid providing benefits under other laws, such as workers’ 

compensation and unemployment insurance laws. For example, in 2004, a 

joint DOL-State of California investigation found that a services company 

located in California had misclassified employees and not paid overtime in

accordance with FLSA. The affected workers provided janitorial services

to a major department store chain located in California, Arizona, Nevada, 

Texas, and New Mexico. According to DOL officials, the company 

contracted out the janitorial work to individuals who were not legitimate 

contractors in that, among other things, they did not control the location

or hours of work. These “contractors” then hired others to do the janitorial 

work. As a result of this arrangement, the services company avoided 

paying minimum wage, overtime, and other benefits, such as workers’ 

compensation. In response to the investigation, the company agreed to pay 

$1.9 million in back wages to 775 employees. Throughout the investigation, 

DOL worked with the state to ensure compliance with state wage laws, 

workers’ compensation programs, and unemployment insurance 

programs. 

DOL’s Outreach Efforts 

Provide Some Information 

on Employee 

Misclassification Issues 

As part of general FLSA outreach efforts to employers and workers, DOL 

provides some information on establishing the employment relationship. 

While these outreach efforts primarily focus on how to comply with 

provisions of FLSA—minimum wage, overtime pay, and child labor—they 

also include some information on the employment relationship. 

Page 30 GAO-06-656 Employment Arrangements
Specifically, information on employment relationship issues is available to 

employers and workers through brochures, pamphlets, fact sheets, and 

Web-based information. According to DOL officials, outreach efforts 

conducted specifically for industries likely to use independent contractors 

may also address the topic of employee misclassification. 

The DOL Web site contains several sources of information on the FLSA 

employment relationship. DOL’s Wage and Hour Division posts its 

Employment Relationship under FLSA (WH Publication 1297) and fact 

sheets that provide information on determining the employment 

relationship in applying provisions of FLSA. For example, Fact Sheet 13: 

Employment Relationship under the Fair Labor Standards Act (FLSA)

outlines the Supreme Court’s factors for determining an employment 

relationship under FLSA and is available in several languages, including 

Chinese, Korean, Spanish, Thai, and Vietnamese. It also identifies common 

problems: (1) construction contractors hire so-called independent 

contractors, who in reality should be considered employees because they 

do not meet the Supreme Court tests for independence and (2) individuals

who work at home are often improperly considered independent 

contractors. Another DOL Web site resource is Employment Laws 

Assistance for Workers and Small Businesses (elaws) FLSA Advisor, an 

interactive system that allows employers and workers to determine 

whether a worker would be considered an employee or an independent 

contractor. These Web site outreach sources contain contacts—such as 

the Wage-Hour toll-free telephone line and links to district office 

telephone numbers—to obtain additional information about employment 

relationship issues. 

Another form of outreach that DOL provides is its workplace poster. FLSA 

regulations require that every employer that has employees subject to the

act’s provisions post a notice explaining the act in a prominent and 

accessible place at the work site.33 While DOL relies heavily on complaints 

from workers to enforce FLSA, the FLSA workplace poster does not 

provide a telephone number for workers or others to call to register 

complaints. Instead, the poster directs inquiries for additional information 

to the nearest Wage and Hour Division office listed in the telephone 

directory under “United States Government, Labor Department.” Also, the 

FLSA workplace poster does not include any information on the 

 33 DOL’s Wage and Hour Division prescribes the content of the FLSA workplace poster (WH 

Publication 1088). 

Page 31 GAO-06-656 Employment Arrangements
employment relationship. As a result, individuals seeking to report 

possible employee misclassification complaints have no easy method to do 

so. 

DOL district offices conduct locally based general FLSA outreach efforts 

for employer and worker groups that do not target employee 

misclassification, but they provide some information on establishing the 

employment relationship. DOL officials told us that they distribute 

employment relationship publications and fact sheets to industries that 

use independent contractors—such as the construction and garment 

industries—and may be more likely to misclassify employees. According 

to DOL officials, this outreach to industries using independent contractors 

may also address the topic of employee misclassification. Also, in DOL’s 

Western Region, a recent outreach effort to educate Hispanic employers 

and workers about general workplace rights and responsibilities has 

identified cases of employee misclassification from calls to a hotline. 

Specifically, the Employment Education and Outreach (EMPLEO)—an 

alliance of federal and state agencies, Mexican and Central American 

consulates, and private nonprofit groups—provides a toll-free hotline 

staffed by Spanish-speaking volunteers, not associated with the 

government, who forward calls to the appropriate agency for response. 

DOL Offices We Studied 

Vary in How Often They 

Forward Misclassification 

Cases to Other Federal and 

State Agencies 

Employers’ misclassification of workers as independent contractors may 

in some circumstances violate tax, unemployment insurance, and workers’ 

compensation laws. According to the Field Operations Handbook, DOL 

regional or district officials are required to share information with other 

appropriate federal and state agencies whenever investigators conducting

FLSA investigations find instances of possible violations of other laws. At 

the same time, however, the FOH cautions investigators not to interpret 

laws outside their authority. We discussed whether DOL forwards 

misclassification cases identified during an FLSA investigation. The DOL 

officials we spoke to in 9 district offices could not provide the number of 

misclassification cases they referred to other agencies because they do not 

track this information. However, their responses indicated that district 

offices vary in how often they implement the procedures to refer cases to

other agencies. Some of the DOL district offices told us that they notified

IRS and state agencies when they found misclassification, while others 

told us that they had little or no contact with other agencies regarding 

misclassification issues. These district offices also reported that it was 

Page 32 GAO-06-656 Employment Arrangements
rare for them to receive misclassification referrals from other federal or 

state agencies.34

DOL requires its regional or district officials to notify other agencies about

possible violations identified during DOL investigations. The procedures 

state that investigators should note conditions that appear to be possible 

violations of other federal or state laws or regulations. They also state that 

for matters that are not within the authority of the Wage and Hour 

Division, investigators should confine their investigative activities to 

obvious conditions that they observe, or are brought to their attention, to 

avoid any impression that the Wage and Hour Division is overstepping its 

investigation authority. Further, the procedures instruct investigators not 

to interpret any law other than those administered by the Wage and Hour

Division. They also direct investigators to report to district office 

management any possible violations of other laws or regulations. The 

Wage and Hour Division provides a form (WH-124) for regional or district 

office officials to use to notify other federal or state agencies about 

possible violations of laws or regulations administered by those agencies. 

According to DOL officials, investigators do not have the authority or the

expertise to look for violations of other laws. DOL officials told us that 

because investigators focus on identifying minimum wage, overtime pay, 

and child labor violations during FLSA investigations, checking for 

compliance with laws enforced by other agencies is not a priority. DOL 

officials also noted that interagency collaboration on employee 

misclassification referrals is difficult because different laws have different

tests of establishing the employment relationship. 

The DOL district offices we contacted varied in how often they

implemented the procedures to refer possible violations, including 

misclassification, to other federal or state agencies. According to the DOL

officials in these offices, in most cases, district offices are responsible for 

contacting other agencies. While some districts told us that they notified

IRS and state agencies about misclassification cases, other districts told us 

 34 Beginning in 2005, DOL’s Employment & Training Administration (ETA) has been 

involved in efforts to coordinate with other agencies about misclassification: (1) ETA has 

coordinated with IRS to assist states in obtaining IRS 1099 information to identify 

misclassification in state unemployment insurance tax audits and (2) ETA is participating 

on an interagency Questionable Employment Tax Practices team with IRS, federal tax 

administrators, and state workforce agencies to develop a memo of understanding, share

information, and coordinate compliance activities. The team is planning to address several 

issues, including misclassification.

Page 33 GAO-06-656 Employment Arrangements
that they had no contact with states or other federal agencies about 

misclassification issues. Some district officials told us that they notified

IRS when investigators found instances of misclassification that appeared 

to involve tax law violations, but rarely received any response from IRS 

after submitting their referral.35 Other districts told us that they had little 

contact with IRS regarding misclassification.36 For example, one district 

official said his district generally does not receive any feedback from IRS. 

He said that his district would have more incentive to refer cases if IRS 

would inform the district when it received DOL referrals and if the district 

knew that IRS would act on the referrals. 

Similarly, some DOL officials told us that their contact with state agencies 

could include misclassification, while others said they had little contact 

with states about these issues. For example, one regional official cited 

coordination with the state agencies that are responsible for employment 

tax and registration of contractors in the construction industry. He said 

that this state agency imposes fines on individuals who are not registered

as contractors and that this sometimes involves misclassification.37

District officials in the offices we contacted said they rarely receive

referrals about misclassification from other federal or state agencies. 

While one district official said that other state agencies in the region refer 

some complaints that occasionally include misclassification issues, most 

officials said their districts have not received any misclassification 

referrals from IRS or other federal or state agencies. 

Contingent workers constitute an important and diverse sector of the U.S.

workforce. Yet while contingent work arrangements offer flexibility to 

both employers and workers, they also provide contingent workers with 

fewer workforce protections than are available to other workers. 

Contingent workers also received fewer benefits. Many contingent 

Conclusions 

 35 The IRS officials we contacted about this could not comment on the specifics of referrals 

at the district level. 

36 Also, some districts have made referrals and conducted general outreach to IRS when

DOL has identified that employers are paying workers in cash, and most likely are not 

paying taxes. However, this practice is not necessarily employee misclassification. 

37 One district has coordinated with state agencies that enforce tax, workers’ 

compensation, unemployment insurance, and Social Security laws about workers paid in 

cash and probably not paying taxes. However, this practice is not employee

misclassification. 

Page 34 GAO-06-656 Employment Arrangements
workers may not be covered under employer-sponsored health and benefit 

plans and may not be able to afford these benefits on their own—a 

situation that could have long-term adverse consequences for workers and 

government programs. To the extent that contingent workers neither 

receive health or pension benefits nor qualify for unemployment or 

workers’ compensation, they may have to turn to needs-based programs, 

such as Medicaid, to make ends meet. To the extent that this occurs, costs 

formerly borne by employers may be shifted to federal and state public 

assistance budgets. To help address the lack of health insurance coverage, 

some state and professional associations have developed programs that 

help contingent workers access health care. Although these initiatives are 

relatively new and long-term outcomes have yet to be determined, they

may serve as promising practices for the future. 

DOL investigators identify instances of employee misclassification when 

responding to minimum wage and overtime pay complaints. However, 

because the FLSA workplace poster does not provide an easy method for 

workers to report complaints, DOL may be missing opportunities to 

address other instances of potential misclassification. Improving the 

workplace poster would reinforce DOL’s complaint-based strategy and 

would help further protect the wages of employees who may be 

misclassified. 

While DOL investigators conducting FLSA investigations are required to 

share information with other federal and state agencies whenever they

find instances of possible violations of other laws, DOL district offices we 

studied varied in how often they forwarded misclassification cases to 

other agencies. DOL does not know the extent to which district offices 

refer misclassification cases to other agencies. DOL cautions investigators 

not to interpret laws outside their authority, but referring misclassification 

cases identified through FLSA investigations would not require DOL to 

interpret other agencies’ laws. In addition, referring this information may 

assist other federal and state agencies in addressing misclassification. 

Furthermore, when DOL does not refer cases of misclassification, other 

agencies lose opportunities to fulfill their fiduciary duties in conserving 

government funds. 

To facilitate the reporting of FLSA complaints, we recommend that the 

Secretary of Labor instruct the Wage and Hour Division to revise the FLSA

workplace poster to include national, regional, and district office 

telephone numbers and a Web site address that complainants may use to 

report alleged employee misclassification issues. 

Recommendations for 

Executive Action 

Page 35 GAO-06-656 Employment Arrangements
To facilitate addressing employee misclassification across federal and 

state programs, we recommend that the Secretary of Labor instruct the 

Wage and Hour Division to evaluate the extent to which misclassification 

cases identified through FLSA investigations are referred to the 

appropriate federal or state agency potentially affected by employee 

misclassification, and take action to make improvements as necessary. In

addressing its referral mechanism, the Wage and Hour Division officials 

should consider building upon efforts by district offices currently engaging 

in referrals. 

We provided a draft of this report to DOL for comment. Overall, DOL 

agreed with the first recommendation and agreed with the primary part of 

the second recommendation, but disagreed with one part of this 

recommendation. DOL’s written comments are reproduced in appendix V.

Agency Comments 

DOL’s ESA agreed with the first recommendation on revising the 

workplace poster to provide additional contact information to facilitate 

the reporting of possible misclassification complaints. ESA noted that the 

Wage and Hour Division is in the process of revising its workplace poster

to add the division’s toll-free phone number. 

Regarding the second recommendation, on referring misclassification 

cases to other agencies, DOL agreed with the value of sharing potential

employee misclassification with appropriate federal and state programs. 

The agency commented that the Wage and Hour Division will review its 

processes to determine the appropriateness of referral of such cases to 

other agencies. However, DOL did not agree with a part of the draft 

recommendation that referral of cases should include notifying the 

employer that the misclassification case has been forwarded to the 

appropriate agency. The agency stated that such notification could place 

the Wage and Hour Division staff in the untenable position of having to 

defend a referral based upon interpretations of laws, which the division 

staff has no expertise or authority to interpret or enforce. After 

considering DOL’s position concerning this aspect of the draft 

recommendation, we deleted this part from the final recommendation. 

DOL’s BLS also provided technical comments, which we incorporated in 

the report as appropriate. 

Page 36 GAO-06-656 Employment Arrangements
As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from the 

date of this report. At that time, we will send copies of this report to the 

Secretary of Labor and other interested parties. We will also make copies 

available to others upon request. In addition, the report will be available at 

no charge on GAO’s Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me 

at (202) 512-7215 or robertsonr@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who have made major contributions to this report 

are listed in appendix VI. 

Sincerely, 

Robert E. Robertson 

Director, Education, Workforce, 

 and Income Security Issues 

Page 37 GAO-06-656 Employment Arrangements
Appendix I: Objectives, Scope, and Appendix I: Objectives, Scope, and Methodology 

Methodology 

The objectives of our study were to determine (1) the size and nature of 

the contingent workforce, (2) the benefits and workforce protections 

provided to contingent workers, and (3) the actions that the Department 

of Labor (DOL) takes to detect and address employee misclassification. 

To obtain information on the contingent workforce, we analyzed data from 

the Bureau of Labor Statistics (BLS). Specifically, we reviewed BLS’s 

Current Population Survey (CPS), which is used to survey people about 

their work and benefits, and a CPS supplement that BLS developed to 

collect information on the contingent workforce. We defined “contingent 

workers” according to the methodology used in our 2000 review of the 

contingent workforce, examining eight categories of workers who could 

be considered contingent: agency temporary workers (temps), direct-hire

temps, on-call workers, day laborers, contract company workers, 

independent contractors, self-employed workers, and standard part-time 

workers.1

 Standard full-time workers were defined as all workers who do 

not fall into one of the contingent worker categories. We reported 

descriptive statistics on the characteristics of contingent workers and 

standard full-time workers, their receipt of health insurance, and their 

participation in pension plans. We did not conduct multivariate analyses to 

determine the causal relationships explaining contingent workers’ 

incidence of low family income, receipt of health insurance, or

participation in pension plans. We also interviewed BLS officials and other 

researchers about contingent worker issues. 

To estimate the size of the contingent workforce and describe how it has 

changed over the past decade, we used data collected in the CPS as well as

data collected in a special supplement to the survey—the Contingent Work 

Supplement—in February 1995, 1999, and 2005.2

 To describe the 

demographic characteristics of the contingent workforce and the extent to 

which these workers have access to health insurance and pension 

benefits, we used data collected in the CPS and the Contingent Work 

Supplement in February 2005. 

 1

 GAO, Contingent Workers: Incomes and Benefits Lag Behind Those of Rest of Workforce, 

GAO/HEHS-00-76 (Washington, D.C.: June 30, 2000). 

2

 The years 1995, 1999, and 2005 were selected to examine changes in the size of the 

contingent workforce over the past decade in order to reflect the changes that occurred

during the time period covered in our 2000 review of contingent workers (1995-1999) as

well as those occurring since that time (1999-2005). 

Page 38 GAO-06-656 Employment Arrangements
Appendix I: Objectives, Scope, and 

Methodology 

The CPS is designed and administered jointly by the Bureau of the Census 

(Census) and BLS. It is the source of official government statistics on 

employment and unemployment in the United States. The survey is used to

collect information on employment as well as such demographic 

information as age, sex, race, marital status, educational attainment, and 

family structure. The survey is based on a sample of the civilian, 

noninstitutionalized population of the United States. Using a multistage 

stratified sample design, about 60,000 households are selected on the basis 

of area of residence to be representative of the country as a whole and of

individual states. A more complete description of the survey, including 

sample design, estimation, and other methodology, can be found in the 

CPS documentation prepared by Census and BLS.3

 

The Contingent Work Supplement was designed by BLS to obtain 

information from workers on whether they hold contingent jobs, defined 

by BLS as jobs that are expected to last only a limited period of time.4

 In 

addition, information is collected on several alternative employment 

relationships, namely working as independent contractors and on call, as 

well as working through temporary help agencies or contract firms. All 

employed persons except unpaid family members are included in the 

supplement. For persons holding more than one job, the questions refer to 

the characteristics of their main job—the job in which they work the most 

hours. Similar surveys have been conducted in February of 1995, 1997, 

1999, 2001, and 2005. For a more complete description of the supplement 

see the technical documentation prepared by Census and BLS.5

For our data reliability assessment, we reviewed agency documents on the 

CPS and conducted electronic tests of the files. On the basis of these 

reviews, we determined the required data elements from the CPS were 

sufficiently reliable for our purposes.

Because the CPS is a probability sample of the population based on 

random selection, the sample is only one of a large number of samples that 

 3

 See Technical Paper 63RV: “Current Population Survey—Design and Methodology,” 

issued March 2002. 

4

 See Anne E. Polivka, “Contingent and Alternative Work Arrangements, Defined,” Monthly 

Labor Review (Oct.1996), pp. 3-9 for a description of how BLS defines and estimates the 

contingent workforce.

5

 Current Population Survey, February 2005: Contingent Work Supplement File Technical 

Documentation CPS-05. 

Page 39 GAO-06-656 Employment Arrangements
Appendix I: Objectives, Scope, and 

Methodology 

might have been drawn. Since each sample could have provided different

estimates, confidence in the precision of the particular sample’s results is 

expressed as a 95 percent confidence interval (for example, +/- 4 

percentage points). This is the interval that would contain the actual 

population value for 95 percent of the samples that could have been 

drawn. As a result, we are 95 percent confident that each of the confidence

intervals in this report will include the true values in the study population. 

For the CPS estimates in this report, we use the CPS general variance

methodology to estimate the sampling error and report it as confidence 

intervals. Percentage estimates based on the total workforce have 

95 percent confidence intervals of within +/- 1 percentage point of the 

estimate itself, unless otherwise noted.6

 Percentage estimates for 

individual categories of contingent workers have confidence intervals of

within +/- 10 percentage points of the estimate unless otherwise noted. 

Estimates of totals exceeding 1 million workers have 95 percent 

confidence intervals of within +/- 10 percent of the estimate itself unless 

otherwise noted. Estimates of totals exceeding 400,000 workers have 

95 percent confidence intervals of within +/- 20 percent of the estimate 

itself unless otherwise noted. The 95 percent confidence intervals for 

other estimates are presented with the estimates themselves in the body of

the report. Consistent with CPS documentation guidelines, we do not 

produce estimates from the February 2005 supplement for populations of 

less than 75,000. 

In addition to the reported sampling errors, the practical difficulties of 

conducting any survey may introduce other types of errors, commonly 

referred to as nonsampling errors. For example, differences in how a 

particular question is interpreted, the sources of information available to 

respondents, or the types of people who do not respond can introduce 

unwanted variability into the survey results. For the CPS, data are often 

collected from one household member for all household members. 

Nonsampling error could occur if a proxy responder was unable to provide 

correct pension or insurance information for household members not at 

home at the time of the interview. 

Although we used data from the Contingent Work Supplement, we used a 

definition of contingent worker different from the one used by BLS in its 

 6

 For example, an estimated 30.6 percent of the 2005 workforce are contingent workers; the

95 percent confidence interval for this estimate would be within 29.6 and 31.6 percent. 

Page 40 GAO-06-656 Employment Arrangements
Appendix I: Objectives, Scope, and 

Methodology 

analysis of the data. As in our 2000 review of contingent workers, we did 

not restrict our definition to include only workers with relatively short job 

tenure, but rather provided information on a range of workers who could 

be considered contingent under different definitions. Although we believe 

that it is useful to consider the nature and size of the population of 

workers in jobs of limited duration as well as their access to benefits, we 

also believe that it is useful to provide information according to categories 

that are more readily identifiable and mutually exclusive.7

 The categories 

we used to define the contingent workforce included direct-hire 

temporaries (workers hired directly by employers to work in temporary 

jobs), even though the Contingent Work Supplement did not contain a 

question that directly asked for this information.8

 We also combined oncall workers and day laborers because the definitions and characteristics 

of these workers are similar and the number of day laborers alone was not 

large enough to be statistically significant. Information on leased workers 

was not included in our 2000 review of contingent workers because of a

lack of data on these workers. For this reason, leased workers were not 

included in the definition of the contingent workforce used in this report. 

To obtain information about the workforce protections that are offered to

contingent workers, we reviewed key workforce protection laws, related 

court cases, and other studies on contingent workers. 

To obtain information on DOL’s actions to detect and address employee 

misclassification as part of FLSA enforcement, we reviewed FLSA and its 

corresponding regulations. We also reviewed DOL documents related to 

FLSA, including policies and procedures on conducting investigations, 

information on investigator training, and outreach efforts. We interviewed

 7

 See Susan N. Houseman, Flexible Staffing Arrangements, August 1999, and Anne E.

Polivka, Sharon R. Cohany, and Steven Hipple, “Definition, Composition, and Economic 

Consequences of the Nonstandard Workforce,” in Nonstandard Work: The Nature and

Challenges of Changing Employment Arrangements, Industrial Relations Research 

Association Series 2000, edited by Francoise Carre, Marianne A. Ferber, Lonnie Goldman,

and Stephen A. Herzenberg, for examples of the research used to model the different

categories of contingent workers. 

8

 The category of direct-hire temps was constructed using several questions from the 

supplement. We included workers who indicated that although they did not work for a 

temporary employment agency, their job was temporary or they could not stay in their jobs

as long as they wished for one of the following reasons: (1) they were working only until a 

specific project was completed, (2) they were temporarily replacing another worker, 

(3) they were hired for a fixed period of time, (4) their job was seasonal, or (5) they

expected to work for less than a year because their job was temporary. 

Page 41 GAO-06-656 Employment Arrangements
Appendix I: Objectives, Scope, and 

Methodology 

officials from the Wage and Hour Division headquarters office, 3 of the 

5 regional offices, and 9 of the 51 district offices—3 district offices in each 

region. We selected a nonprobability sample of district and regional offices 

to target offices located in large cities and that provided geographic 

coverage across each region. Because this was not a probability sample, 

we did not generalize the results of our regional and district interviews to 

the regions and districts we did not contact. In each office, we interviewed 

regional and district management-level officials using a standard set of 

questions in order to obtain information related to employee 

misclassification as part of FLSA enforcement. The interview questions 

asked about (1) the extent and source of employee misclassification, 

(2) investigations related to employee misclassification, and (3) training 

and outreach efforts related to employee misclassification. We contacted 

the following offices: 

• Northeast Regional Office 

• New York City District Office 

• Richmond District Office 

• Southern New Jersey District Office 

• Midwest Regional Office 

• Columbus District Office 

• Detroit District Office 

• Springfield District Office 

• Western Regional Office 

• East Los Angeles District Office 

• Phoenix District Office 

• Seattle District Office 

In addition, we reviewed literature and interviewed researchers from four 

academic institutions and two nonprofit groups about employee 

misclassification issues. 

We performed our work in accordance with generally accepted 

government auditing standards between July 2005 and June 2006. 

Page 42 GAO-06-656 Employment Arrangements
Appendix II: Establishing the Employment Appendix II: Establishing the Employment Relationship of Workers 

Relationship of Workers 

Establishing the employment relationship of workers under the Fair Labor 

Standards Act (FLSA) and the Employee Retirement Income Security Act

(ERISA) can be complex and may result in litigation. FLSA requires that an

employer-employee relationship exist for a worker to be covered by the

act’s provisions.1

 FLSA—which provides minimum wage and overtime pay 

protections—requires that employers pay those employees covered by the 

act at least the minimum wage and pay overtime wages when they work 

more than 40 hours a week.2 The act defines “employee” broadly as an 

individual employed by an employer. The U.S. Supreme Court has 

identified certain factors that should be considered in determining 

whether a worker is an employee or an independent contractor under 

FLSA. In general, a worker who meets the FLSA definition of employee is

one who is economically dependent on the business he or she serves. In 

contrast, an independent contractor is one who is engaged in a business of 

his or her own. The test used to determine whether an employment 

relationship exists for FLSA purposes is referred to as the economic 

realities test.3

 The court has indicated that in applying this economic 

realities test under FLSA, such determinations must consider the 

circumstances of the whole activity and cannot be based on isolated 

factors or a single characteristic. In enforcing FLSA, DOL uses the 

following factors: 

• The extent to which the worker’s services are an integral 

part of the employer’s business 

• Examples: Does the worker play an integral role in the 

business by performing the primary type of work that 

the employer performs for their customers? Does the 

worker perform a discrete job that is one part of the 

business’ overall process of production? Does the 

worker supervise any of the company’s employees? 

• The permanency of the relationship 

• Example: How long has the worker worked for the same 

company? 

 1

 29 U.S.C. 201 et. seq. 

2

 FLSA also includes record-keeping and child labor provisions. 

3 Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947). 

Page 43 GAO-06-656 Employment Arrangements
Appendix II: Establishing the Employment 

Relationship of Workers 

• The amount of the worker’s investment in facilities and 

equipment 

• Examples: Is the worker reimbursed for any purchases, 

materials, or supplies? Does the worker use his or her 

own tools or equipment? 

• The nature and degree of control by the employer 

• Examples: Who decides on what hours to be worked? 

Who is responsible for quality control? Does the worker 

work for any other company(s)? Who sets the pay rate? 

• The worker’s opportunities for profit and loss 

• Examples: Did the worker make any investments such 

as insurance or bonding? Can the worker earn a profit 

by performing the job more efficiently or exercising 

managerial skill or suffer a loss of capital investment? 

• The amount of initiative, judgment, or foresight in open 

market competition with others required for the success 

of the claimed independent contractor 

• Examples: Does the worker perform routine tasks 

requiring little training? Does the worker advertise 

independently through the Yellow Pages or business 

cards? Does the worker have a separate business site? 

In some cases, employers misclassify workers as independent contractors 

when they should be classified as employees. Under FLSA, the courts have 

examined the issue of misclassification by applying the economic realities 

test and making case-by-case determinations as to whether the workers 

are employees and thereby covered by the act. For example, a federal 

district court recently determined that over 500 delivery workers for 

supermarket and drugstore chains had been misclassified as independent

contractors.4

 The court ruled that the companies that had hired these 

workers to make deliveries controlled their placement and pay, provided

them with delivery carts to rent and uniforms to purchase, required little 

skill to perform the job, and that the work performed constituted an 

integral part of the companies’ business. Therefore, the court ruled that 

they were employees and entitled to overtime wages under FLSA. In 

another case, DOL brought suit on behalf of cable installers against cable

television providers and cable installation companies for overtime 

 4 Ansoumana v. Gristede’s Operating Corp., 255 F. Supp. 184 (2003). 

Page 44 GAO-06-656 Employment Arrangements
Appendix II: Establishing the Employment 

Relationship of Workers 

compensation under FLSA. In this case, the court ruled that the employer 

did not exhibit the type of control needed to characterize the relationship 

as employee-employer, that the workers provided their own van and other 

equipment, and that the job required skilled labor. On the basis of these 

factors, the court denied the claim and held that the cable installers were 

properly classified as independent contractors and not entitled to 

protection under FLSA.5

The complexity of issues involving joint employment and misclassification 

of employees is illustrated by litigation involving the Microsoft 

Corporation. In the late 1980s, Microsoft began to hire what the company 

classified as independent contractors to fill many of its full-time 

employment vacancies. After the Internal Revenue Service (IRS) 

determined that these workers were common law employees in 1989 and 

1990, Microsoft terminated the employment relationship, set up an 

employment agency, and converted these workers into temporary agency 

employees. The workers sued Microsoft, and in 1996 the court ruled that 

they were employees of the company rather than independent contractors 

or temporary agency employees.6

 The court then considered whether or 

not the employees were eligible for the employer’s saving and stock 

purchase plan benefits under ERISA. The determining factor was the 

language included in Microsoft’s plan, which expressly made any common 

law employee on the U.S. payroll eligible for benefits. However, while the 

court determined that the workers were common law employees, it 

directed Microsoft to determine what rights these workers, as common 

law employees, had under Microsoft’s ERISA plan. Eventually the parties 

entered into a settlement agreement in which Microsoft paid $96.9 million. 

Other cases have held that although workers may have been misclassified, 

they still did not qualify for benefits under ERISA plans because they did 

not qualify under the language of the plan that excluded certain types of 

employees, such as temporary or leased employees.7

 Some employers 

amended their ERISA plans in response to the Microsoft decision to limit 

participation to workers that the employers classified as employees, 

whether or not the excluded workers may later be determined to be 

 5 Herman v. Mid-Atlantic Installation Services, Inc., 164 F.Supp2d 667 (2000). 

6 Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir. 1996). 

7 Wolf v. Coca Cola, 200 F.3d 1337 (11th Cir.2000); Bronk v. Mountain States Tel. & Tel.,

Inc., 140 F. 3d 1335 (10th Cir.1998); Abraham v. Exxon Corp., 85 F.3d 1126 (5th Cir.1996). 

Page 45 GAO-06-656 Employment Arrangements
Appendix II: Establishing the Employment 

Relationship of Workers 

employees by the IRS or courts. The IRS has approved the use of such 

language in ERISA plans.8

 8

 The IRS issued an unnumbered Technical Advice Memorandum on July 28, 1999, 

approving a clause excluding from participation in the plan individuals whom the employer

had engaged and treated as independent contractors, even if they were later found to be

employees. 

Page 46 GAO-06-656 Employment Arrangements
Appendix III: Size and Characteristics of the Appendix III: Size and Characteristics of the Contingent Workforce 

Contingent Workforce 

This table provides the following information on contingent workers: 

growth rates (percentage changes) and changes in the share of the total 

workforce (percentage point changes) for 1995-1999, 1999-2005, and 1995-

2005. 

Table 4: Changes in the Size of the Contingent Workforce 

Feb. 1995—Feb. 1999 Feb. 1999—Feb. 2005 Feb. 1995—Feb. 2005 

Category of 

worker 

Percentage

change

(number of 

workers)

Percentage

point change

(percentage of

total workforce)

Percentage

change

(number of 

workers)

Percentage

point change

(percentage of

total workforce)

Percentage

change

(number of 

workers)

Percentage

point change

(percentage of

total workforce)

Agency temps + 0.6* - 0.1* + 2.4* 0.0* + 3.0* - 0.1*

Direct-hire temps - 4.9* - 0.3 - 7.9* - 0.4 - 12.4 - 0.7

On-call workers/ 

day laborers + 8.2* + 0.1* + 25.5 + 0.3 + 35.8 + 0.4

Contract company 

workers + 17.9* + 0.1* + 5.7* 0.0* + 24.7 + 0.1*

Independent 

contractors - 0.7* - 0.4 + 25.4 + 1.1 + 24.5 + 0.7

Self-employed 

workers - 13.5 - 1.1 - 2.5* - 0.4 - 15.6 - 1.5

Standard part-time 

workers + 3.4* - 0.4* + 5.6 0.0* + 9.2 - 0.4*

Subtotal: 

contingent

workers - 0.9* - 2.3 + 8.4 + 0.7 + 7.4 - 1.6

Standard full-time 

workers + 10.3 + 2.3 + 4.5 - 0.7 + 15.3 + 1.6

Total workforce + 6.7 ------ + 5.7 ------- + 12.8 -------

Source: GAO analysis of data from the CPS February 2005 Contingent Work Supplement. 

Note: An asterisk (*) denotes that the change over this period was not statistically significant for this

category of worker at the 95 percent confidence level. 

Page 47 GAO-06-656 Employment Arrangements
Appendix III: Size and Characteristics of the 

Contingent Workforce 

Table 5: Characteristics of Contingent Workers (February 2005) 

(Percentage unless indicated otherwise) 

Agency 

temps 

Direct-hire 

temps

On-call 

workers and

day laborers

Contract 

company 

workers

Independent

contractors 

Selfemployed

workers 

Standard

part-time 

workers

Standard

full-time 

workers

AGE 

16-19 years 3 11 7 1 1 0 20 1

20-24 years 17 21 15 11 3 1 17 8

25-34 years 30 25 22 25 15 13 15 24

35-54 years 37 29 39 47 54 55 30 52

55-64 years 11 9 11 14 19 21 10 13

65 and older 3 5 7 2 9 9 8 2

Mean age (years) 37.4 35.2 38.9 40.3 46.4 47.9 36.2 40.8

GENDER 

Men 47 49 53 69 65 63 32 56

Women 53 51 47 31 35 35 37 68

RACE/ORIGIN 

White, non-Hispanic 50 63 68 62 80 81 76 69

Black, non-Hispanic 22 9 8 15 5 4 9 11

Hispanic 21 18 19 16 9 7 11 14

Other, non-Hispanic 8 9 5 7 5 9 5 6

EDUCATION 

Less than high school diploma 18 15 20 17 8 8 21 9

High school diploma, no

college 

29 21 29 22 28 28 27 31

Some college 32 33 28 29 29 26 35 28

College degree 19 17 16 18 22 23 12 21

Graduate school 2 14 6 14 13 15 5 11

DIVISION 

New England 4 6 3 3 5 3 6 5

Middle Atlantic 8 11 12 15 11 12 15 14

E. North Central 17 14 14 10 15 15 19 15

W. North Central 5 8 7 4 8 9 8 7

South Atlantic 19 17 15 30 19 17 16 19

E. South Central 7 6 7 4 5 5 5 6

W. South Central 12 9 13 15 10 11 9 11

Mountain 6 6 7 6 9 8 6 7

Pacific 22 23 23 13 19 19 15 15

Page 48 GAO-06-656 Employment Arrangements
Appendix III: Size and Characteristics of the 

Contingent Workforce 

Agency 

temps

Directhire 

temps

On-call 

workers 

and day

laborers

Contract 

company 

workers

Independent

contractors 

Selfemployed

workers 

Standard

part-time 

workers

Standard

full-time 

workers

INDUSTRY 

Business services 28 4 5 5 7 5 4 3

Auto and repair services 0 1 1 0 4 4 1 1

Personal services 

 —Private households 2 2 1 0 2 0 1 0

 —Other personal services 1 1 2 2 5 6 3 2

Arts, entertainment, recreation services 0 3 4 1 3 2 3 1

Professional services 

 —Hospitals 2 4 6 3 0 0 5 5

 —Health services 7 3 6 5 3 7 7 5

 —Educational services 1 28 18 8 2 2 10 10

 —Social services 1 2 2 0 3 4 4 2

 —Other professional services 5 9 4 5 15 8 6 7

Agriculture 0 1 2 0 2 11 0 1

Mining 0 0 1 0 0 0 0 1

Construction 3 9 14 17 22 6 3 7

Durable goods manufacturing 17 3 2 8 2 4 1 10

Nondurable goods manufacturing 12 2 3 6 1 3 2 5

Transportation and warehousing 2 2 7 2 4 3 3 5

Communications, information, Internet 2 2 2 4 2 1 2 3

Utilities and sanitation 1 1 1 2 0 0 0 1

Wholesale trade 6 2 2 3 2 5 1 4

Retail trade 

 —Other retail trade 2 6 6 3 9 17 22 11

 —Eating and drinking establishments 1 5 5 2 1 4 16 4

Banking and other finance 2 1 1 2 2 2 2 4

Insurance and real estate 2 2 2 5 8 7 2 4

Forestry and fisheries 0 0 0 0 1 1 0 0

Justice, public order, and safety 0 1 3 2 0 0 0 3

Admin of human resource programs 1 1 0 3 0 0 0 1

National security, international affairs 0 1 0 6 0 0 0 1

Other public administration 2 2 0 7 0 0 0 2

Page 49 GAO-06-656 Employment Arrangements
Appendix III: Size and Characteristics of the 

Contingent Workforce 

Agency 

temps

Directhire 

temps

On-call 

workers 

and day

laborers

Contract 

company 

workers

Independent

contractors 

Selfemployed

workers 

Standard

part-time 

workers

Standard

full-time 

workers

OCCUPATION 

Management 2 5 3 4 16 29 3 10

Business and financial operations 6 3 2 6 6 2 2 5

Computer and mathematical science 3 2 1 13 2 1 1 3

Architecture and engineering 2 1 1 6 2 0 1 2

Life, physical, and social science 1 2 0 1 1 1 0 1

Community and social service 0 2 1 1 0 0 1 2

Legal 0 1 0 0 2 3 0 1

Education, training, and library 2 17 14 2 2 1 7 6

Arts, design, entertainment, sports, media 1 4 4 3 7 3 2 1

Health care practitioner and technical 3 3 7 2 3 6 6 5

Health care support 5 2 3 3 1 0 4 2

Protective service 0 1 3 12 0 0 1 3

Food preparation and serving 1 5 6 3 0 1 16 4

Building, grounds cleaning, and 

maintenance 5 3 6 7 5 3 4 3

Personal care and service 4 6 3 1 7 8 5 2

Sales and related occupations 2 6 5 2 17 21 18 10

Office and administrative support 25 15 9 5 3 5 18 15

Farming, fishing, and forestry 1 2 2 0 1 0 0 1

Construction and extraction 4 7 15 20 15 4 2 6

Installation, maintenance, and repair 3 4 4 2 4 3 1 4

Production 17 4 3 2 2 4 3 8

Transportation and material moving 13 5 10 3 4 3 6 7

Source: GAO analysis of data from the CPS February 2005 Contingent Work Supplement. 

Page 50 GAO-06-656 Employment Arrangements
A

Workers 

ppendix IV: Key Laws Designed to Protect

Page 51 GAO-06-656

Appendix IV: Key Laws Designed to Protect 

Workers

This appendix provides a more detailed description of the key laws 

designed for workers’ protection and their applicability to members of the 

contingent workforce. By definition, these laws apply only to employees—

independent contractors and self-employed workers are not covered. 

However, no definitive test exists to distinguish whether a worker is an 

employee or an independent contractor. In determining whether an 

employment relationship exists under federal statutes, courts have 

developed several criteria. These criteria have been classified as the 

economic realities test, the common law test, and a combination of the 

two sometimes referred to as a hybrid test. 

The economic realities test looks to whether the worker is economically 

dependent upon the principal or is in business for himself. The test is not 

precise, leaving determinations to be made on a case-by-case basis. The 

test consists of a number of factors, such as the degree of control 

exercised by the employing party over the worker, the worker’s 

opportunity for profit or loss, the worker’s capital investment in the 

business, the degree of skill required for the job, and whether the worker 

is an integral part of the business. 

The traditional common law test examines the employing party’s right to 

control how the work is performed. To determine whether the employing 

party has this right, courts may consider the degree of skill required to 

perform the work, who supplies the tools and equipment needed to 

perform the work, and the length of time the worker has been working for 

the employing party. 

When the tests are combined in some type of hybrid, a court typically 

weighs the common law factors and some additional factors related to the 

worker’s economic situation, such as how the work relationship may be 

terminated, whether the worker receives leave and retirement benefits, 

and whether the hiring party pays Social Security taxes. 

Each of the laws is discussed in more detail below, including the tests 

used under each to determine whether a worker is an employee or an 

independent contractor.

Family and Medical Leave 

Act of 1993 (29 U.S.C. 

2601) 

The Family and Medical Leave Act of 1993 provides various protections for 

employees who need time off from their jobs because of medical problems 

or the birth or adoption of a child. The act requires employers to allow 

employees to take up to 12 weeks of unpaid leave for medical reasons 

related to the employee or a family member or to care for a newborn or 

Employment Arrangements
Appendix IV: Key Laws Designed to Protect

Workers 

newly adopted child without reduction of pay or benefits when he or she 

returns to work. It also requires employers to maintain the same health 

care coverage for employees while they are on leave that was provided 

when they were actively employed. To be eligible for this coverage, 

employees must have been employed for 12 months by an employer that 

employs 50 or more employees who work 20 or more calendar weeks in a 

year and must have worked at least 1,250 hours during the past 12 months. 

To determine whether a worker is a covered employee under the law, the 

courts have applied the economic realities test. 

The Employee Retirement Income Security Act establishes uniform 

standards for employee pension and welfare benefit plans, including 

minimum participation, accrual, and vesting requirements; fiduciary 

responsibilities; and reporting and disclosure requirements. The act does 

not require employers to provide pension or welfare benefits to 

employees; it applies to any employer or employee organization engaged 

in commerce or any industry affecting commerce that maintains a covered 

employee benefit plan. 

Contingent workers are covered by the act only if the employer allows 

them to participate in a pension or welfare benefit plan. Which employees 

are included in a plan depends on how the plan documents are drafted and 

interpreted. If an employer wishes to exclude some or all types of 

contingent workers from participating in a plan, the employer must clearly 

define the excluded groups of workers, and that definition must be 

properly applied. Otherwise, contingent workers whom the employer 

intended to exclude may be covered.

To determine whether a worker is a covered employee under the law, the 

courts have applied the common law test. 

The Fair Labor Standards Act establishes minimum wage, overtime, and 

child labor standards for employees. The act covers all employees of 

employers engaged in commerce or the production of goods that meet a 

dollar-volume-of-business requirement. The act also covers all employees 

engaged in commerce or the production of goods for commerce; all

employees engaged in domestic service covered by the law; all employees 

of a hospital, residential care institution, or school; and all federal, state, 

and local government employees. 

Employee Retirement 

Income Security Act (29 

U.S.C. 1001) 

Fair Labor Standards Act 

(29 U.S.C. 201) 

Page 52 GAO-06-656 Employment Arrangements
Appendix IV: Key Laws Designed to Protect

Workers 

To determine whether a worker is a covered employee under the law, the 

courts have applied the economic realities test. 

The National Labor Relations Act guarantees the right of employees to 

organize and bargain collectively. The act applies to all employers and 

employees in their relationships with labor organizations whose activities 

affect interstate commerce. The act does not differentiate by firm size. 

The coverage issue regarding temporary workers is whether they have a 

right to join the same bargaining units as permanent employees with 

whom they work. Generally, agency temps who work at one site on a fairly 

regular basis over a sufficient period of time can join the existing 

collective bargaining unit of permanent employees if the agency (or 

agencies, if more than one is involved) and the employer that hired the 

workers from the agency consent to this arrangement. However, 

temporary workers often do not work at one work site long enough to 

have an interest in joining a union. 

To determine whether a worker is a covered employee under the law, the 

courts have applied the common law test. 

The unemployment insurance system is a joint federal-state system funded 

by both federal and state payroll taxes. It was established by the Social

Security Act of 1935 and was intended to provide temporary relief through 

partial wage replacement for workers who lose jobs for economic reasons, 

such as layoffs, and to help stabilize the economy during recessions. The 

system pays benefits to workers who become unemployed and meet stateestablished eligibility rules. To determine whether a worker is a covered 

employee under the law, most states use a different type of test than is 

used for other laws. This test is called the ABC test: workers are 

considered employees unless (a) they are free from direction and control 

over performance of the work; (b) the service is performed either outside 

the usual course of the business for which it is performed or is performed 

outside of all places of business of the enterprise for which it is performed; 

and (c) the individual is customarily engaged in an independent trade, 

occupation, profession, or business. 

State and federal workers’ compensation programs provide benefits for 

wage loss and medical care to injured workers and, in some cases, their 

families. At the same time, employers’ liabilities are limited strictly to 

National Labor Relations 

Act (29 U.S.C. 151) 

Unemployment Insurance 

Workers’ Compensation 

Page 53 GAO-06-656 Employment Arrangements
Appendix IV: Key Laws Designed to Protect

Workers 

workers’ compensation payments. Benefits paid depend on the nature and 

extent of the injuries and the ability of injured workers to continue 

working. For employees whose injuries are not serious, the only benefits 

received are of a medical nature. Employees with more serious injuries or 

illnesses may also be entitled to wage-loss benefits; vocational 

rehabilitation benefits; and schedule payments for the permanent loss, or 

loss of use of, parts or functions of the body. In addition, survivors of an 

employee may receive death benefits if the employee’s death resulted from 

a job-related injury or illness. To determine whether a worker is a covered

employee under the law, most states use the common law test. 

The Occupational Safety and Health Act requires employers to maintain a

safe and healthful workplace and provides employees with certain rights 

and responsibilities. Courts use either the economic realities test or the 

common law test to determine whether someone is an employee under the 

act. According to the law, the party responsible for ensuring safety is the 

employer that is in direct control of the workplace and the actions of those 

who work there, including contingent workers such as agency temps and 

contract company workers who are supplied by another party. Thus, if an 

accident occurs at the workplace, the employer that created the hazard, 

not the temporary help firm or contract company, is responsible. 

Title VII of the Civil Rights Act, the Americans with Disabilities Act, and 

the Age Discrimination in Employment Act protect all employees and job

applicants from various forms of discrimination, such as discrimination 

based on race, national origin, gender, disability, or age. The Civil Rights 

Act and the Americans with Disabilities Act apply to employers that have

15 or more employees for each of 20 or more calendar weeks in a year. 

The Age Discrimination in Employment Act applies to employers that have 

20 or more employees for each working day in each of 20 or more calendar 

weeks. 

Occupational Safety and 

Health Act (29 U.S.C. 651) 

Title VII of the Civil Rights 

Act (42 U.S.C. 2000e), the 

Americans with 

Disabilities Act (42 U.S.C. 

12101), and the Age 

Discrimination in 

Employment Act (29 

U.S.C. 621) 

Further, each of these laws explicitly covers temporary employment 

agencies. Title VII of the Civil Rights Act explicitly prohibits employment 

agencies from discriminating on the basis of race, color, religion, gender, 

or national origin in classifying or referring people for employment. The 

Americans with Disabilities Act explicitly includes employment agencies

in the definition of entities covered by the law. The Age Discrimination in 

Employment Act explicitly prohibits employment agencies from 

discriminating on the basis of a person’s age (if over 40) in classifying or 

referring a person for employment. 

Page 54 GAO-06-656 Employment Arrangements
Appendix IV: Key Laws Designed to Protect

Workers 

To determine whether a worker is a covered employee under federal 

antidiscrimination statutes, the courts have used all three tests—the 

common law test, the economic realities test, and the hybrid test. 

Independent contractors receive some protection from discrimination. 

Under a provision of the Civil Rights Act that protects contractual rights, 

independent contractors are protected against racial discrimination in 

both the termination of a contract and the creation of a hostile work 

environment. In joint employment situations, one employer may be liable 

for the discriminatory acts of the other employer if the employer that is 

being held liable controls some substantial aspect of the employee’s 

compensation or terms and conditions of employment. 

Continuation of group health plan coverage is generally required under 

this act for employees who otherwise would lose coverage as a result of 

certain events, such as being laid off by their employers. Individuals may 

continue coverage under their former employers’ group health plans at 

their own expense. Depending on the qualifying event, the duration of 

required coverage ranges from 18 to 36 months. In general, when a 

covered employee experiences termination or reduction in hours of 

employment, the continued coverage of the employee and the employee’s 

spouse and dependents must continue for 18 months. The act applies to all 

group health plans, except those maintained by employers with fewer than 

20 employees. Workers who were considered employees under the group 

health plans are also employees for purposes of this act. 

This act guarantees the availability and renewability of health insurance 

coverage for certain individuals. It limits, and in most cases eliminates, the 

waiting time before a plan covers a preexisting condition for group health

plan participants and beneficiaries who move from one job to another and

from employment to unemployment. The act also creates federal 

standards for insurers, health maintenance organizations, and employer 

plans, including employers who self-insure. The act does not require 

employers to offer health insurance to its employees or, if they offer health 

insurance, to cover part-time, seasonal, or temporary employees. The act 

increases the tax deduction for health insurance for self-employed 

workers, including independent contractors, to 100 percent of premiums 

and provides new tax incentives to encourage individuals and employers 

to purchase long-term-care insurance. 

Consolidated Omnibus 

Budget Reconciliation Act 

(29 U.S.C. 1161) 

Health Insurance 

Portability and 

Accountability Act of 1996 

(Pub. L. No. 104-191) 

Page 55 GAO-06-656 Employment Arrangements
Appendix V: Comments from the Department Appendix V of Labor : Comments from the Department 

of Labor 

Page 56 GAO-06-656 Employment Arrangements
Appendix V: Comments from the Department 

of Labor 

Page 57 GAO-06-656 Employment Arrangements
Appendix VI: 

A

GAO Contact and Staff 

cknowledgments 

Page 58 GAO-06-656

Appendix VI: GAO Contact and Staff 

Acknowledgments 

Robert E. Robertson, (202) 512-7215 or robertsonr@gao.gov. 

In addition to the contact named above, Brett S. Fallavollita, 

Linda L. Siegel, Janice L. Peterson, and Jason R. Campbell contributed 

significantly to all aspects of this report. Daniel A. Schwimer reviewed the

coverage of contingent workers under laws designed to protect workers; 

Richard P. Burkard provided legal support; Paula J. Bonin, 

Evan B. Gilman, Mark F. Ramage, and Joan K. Vogel assisted in analyzing

the BLS data; Thomas D. Short assisted with IRS issues; and 

Jonathan S. McMurray assisted in report development. 

GAO Contact 

Staff 

Acknowledgments 

Employment Arrangements
Related GAO Products Related GAO Products 

Department of Labor, Wage and Hour Division: Defining and 

Delimiting the Exemptions for Executive, Administrative, Professional, 

Outside Sales, and Computer Employees. GAO-04-735R. Washington, 

D.C.: May 5, 2004. 

Worker Protection: Labor’s Efforts to Enforce Protections for Day 

Laborers Could Benefit from Better Data and Guidance. GAO-02-925. 

Washington, D.C.: September 26, 2002. 

Private Pensions: Improving Worker Coverage and Benefits. GAO-02-225. 

Washington, D.C.: April 9, 2002. 

Health Insurance: Proposals for Expanding Private and Public 

Coverage. GAO-01-481T. Washington, D.C.: March 15, 2001. 

Health Insurance: Characteristics and Trends in the Uninsured 

Population. GAO-01-507T. Washington, D.C.: March 13, 2001. 

Pension Plans: Characteristics of Persons in the Labor Force without 

Pension Coverage. GAO/HEHS-00-131. Washington, D.C.: August 22, 2000. 

Contingent Workers: Incomes and Benefits Lag Behind Those of Rest of

Workforce. GAO/HEHS-00-76. Washington, D.C.: June 30, 2000. 

Fair Labor Standards Act: White-Collar Exemptions Need Adjustments 

for Today’s Work Place. GAO/T-HEHS-00-105. Washington, D.C.: May 3, 

2000. 

Fair Labor Standards Act: White Collar Exemptions in the Modern Work

Place. GAO/HEHS-99-164. Washington, D.C.: September 30, 1999. 

Employment-Based Health Insurance: Medium and Large Employers 

Can Purchase Coverage, but Some Workers Are Not Eligible. 

GAO/HEHS-98-184. Washington, D.C.: July 27, 1998. 

Private Health Insurance: Continued Erosion of Coverage Linked to Cost 

Pressures. GAO/HEHS-97-122. Washington, D.C.: July 24, 1997. 

Tax Administration: Issues in Classifying Workers as Employees or 

Independent Contractors. GAO/T-GGD-96-130. Washington, D.C.: June 20,

1996. 

Page 59 GAO-06-656 Employment Arrangements
Related GAO Products 

Tax Administration: Issues Involving Worker Classification. 

GAO/T-GGD-95-224. Washington, D.C.: August 2, 1995. 

Tax Administration: Estimates of the Tax Gap for Service Providers. 

GAO/GGD-95-59. Washington, D.C.: December 28, 1994. 

Tax Administration: Improving Independent Contractor Compliance 

with Tax Laws. T-GGD-94-194. Washington, D.C.: August 4, 1994.

Tax Administration: Approaches for Improving Independent Contractor 

Compliance. GGD-92-108. Washington, D.C.: July 23, 1992. 

Workers at Risk: Increased Numbers in Contingent Employment Lack 

Insurance, Other Benefits. GAO/HRD-91-56. Washington, D.C.: March 8, 

1991. 

Tax Administration: Information Returns Can Be Used to Identify 

Employers Who Misclassify Workers. GAO/GGD-89-107. Washington, D.C.: 

September 25, 1989. 

(130460) Page 60 GAO-06-656 Employment Arrangements
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Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

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