Jobs Report Misses Growing Number of Contractors

The Labor Department's jobs number tracks people in the work force, but it doesn't account for millions of workers classified as independent contractors. Now, a battle is brewing over whether contractors like Gupertino Magana are getting a fair deal.

Magana is drives a FedEx truck, wears a FedEx uniform, and delivers FedEx packages, but he's not on the FedEx payroll. He's one of 10 million independent contractors and freelancers. Businesses like the savings and the flexibility. In fact, one survey found 20% of businesses that use contractors are doing so more than they did a year ago.

Critics say not only are millions of workers missing out on benefits, but the government is missing out on payroll taxes.

"Many employers want to treat workers much more like a kind of inventory, boosting their labor force when demand is strong, cutting it back when demand falters," says Jared Bernstein of the Economic Policy Institute.

But Magana is not so enthusiastic. He and nearly 200 other drivers are suing FedEx for back pay and benefits.

"We have a title, 'independent contractor,' but we are employees of FedEx, because they control everything we do," Magana said.

The International Brotherhood of Teamsters claims that during the last two years state revenue and labor authorities in at least nine states have found that FedEx mis-classified contractors. The Teamsters say California tax authorities, the California Court of Appeal, the National Labor Relations Board and others have all found the contractor model to be illegal.

"What FedEx does, in reality, is treat them just like employees, down to what color their socks are," said attorney Lynn Faris.

FedEx dismisses the complaints as the work of union organizers, a charge the drivers deny.

"I think this unhappy group of contractors have to find someone to blame," says FedEx spokesman Maury Lane . "And I think the blame may lie in their ability to actually run their own small business."

FedEx is offering big incentives for drivers to take on multiple routes, and points to drivers like Ray Skiptunis, who turned a single route into a thriving, nine-route business.

"Last year, the revenues were about $863,000 ," Skiptunis said. This year, I think I will come in somewhere between $1.1 million and $1.2 million, and it's profitable."

The drivers who are suing say the FedEx strategy is an effort to get around the courts, and now Congress is getting involved.

A government survey shows more than 80% of contractors are happy with their status.

© 2008 CNBC.com