Requiring its drivers to act like employees, but treating them as contractors saves FedEx big bucks - but is it legal?

FedEx: Failing to deliver for its drivers?

Should FedEx be able to enjoy all the benefits of having employee drivers, but treat them like independent contractors - leaving those workers with about 30% less in wages, benefits and other worker protections, like unemployment compensation?

iWatch News, a project of The Center for Public Integrity, has taken on that topic. "Employees are eligible for a host of legal benefit and protection programs that governments run and regulate," according to the report, by American University iWatch Fellow Amy Biegelsen. "Employers must pay into those programs on behalf of 'employees,' but not [on behalf of] 'independent contractors.'

Businesses have strong incentive to classify employees as contractors - they save about 30% and reduce regulatory exposure, according to the report. But such "misclassification" cause workers "to lose legal rights, governments [to] lose tax revenue, and businesses [to] gain an unfair advantage over competitors who pay the extra costs to treat their workers as employees."

Biegelsen used the example of FedEx driver Gary Terrio, who signed on as a contract driver, thinking that meant he'd control his schedule, route and enjoy other flexible working conditions independent contractors typically do.

But Terrio was required to be at the FedEx terminal at 6 AM daily, was paid by the delivery, not by the hour, and was docked if a package was late. He had to purchase and insure his own FedEx-approved truck. He also had to pay his entire Medicare and Social Security contributions (which are typically split between an employer and worker when the latter is classified as an employee), and was not eligible for sick, disability or family leave, or unemployment compensation. He also couldn't affix bumper stickers to the truck he had paid for, or run a quick personal errand in it in between deliveries or at the beginning or end of the day.

All of that expense and aggravation netted him only about $500 a week. “I would have loved to have been just an independent contractor,” he told Biegelsen. Instead, “I felt like an employee.”

The implications for this shift is far greater than FedEx's workforce because of the sizable and growing number of independent contractors across all U.S. industries and professions.

In its inaugural annual "Independent Workforce Index," MBO Partners found that there were 16 million independent contractors (what the company calls "career independent workers") in the United States in 2011. By the year 2020, the consultancy predicts that 70 million people - more than 50 percent of the private workforce - will be independent.