Commentary

New report highlights growing misclassification problem

A report released this week by the Economic Policy Institute (EPI), (In)dependent Contractor Misclassification, lifts up the parade of horribles that goes along with this increasingly common method of cheating workers, taxpayers, and honest business competitors. Author Francoise Carré documents the harm caused by fraudulently claiming employees as contractors includes lost wages and benefits, unpaid payroll taxes and Social Security, and lack of worker’s compensation and unemployment insurance coverage. The effect of worker misclassification on North Carolina was exhaustively researched by McClatchy last fall in their series, Contract to Cheat. According to this new report, worker misclassification is more often found in industries that benefit the most financially from the practice (e.g., industries with high worker’s compensation costs) as well as industries where workers tend to work alone, such as housecleaning or trucking.

Key recommendations include information sharing between state and federal agencies and employer and worker education. However, the report also notes the importance of strong deterrents:

The impact of inspections and audits would be greater if fines for fraud were increased and represented a significant risk for businesses; fines could be calibrated not only to the number of workers affected but to the size of the business that commits the fraud.

Tomorrow, the House Commerce and Job Development Committee is taking up HB 482, the Employee Fair Classification Act. Committee members should look at the recommendations of the EPI report and consider the Contract to Cheat findings as they determine how best to tackle this pervasive problem.

One Comment


  1. Patty Foster

    June 10, 2015 at 10:17 am

    “Employee Misclassification” would be better entitled, ” Government Wants More Money from Workers and Employers”. Reclassifying workers as employees is a thinly disguised attempt to get more Revenue for the government, especially the Social Security /Medicare tax, which requires employers to pay a whopping 7.65% on all employee wages, not to mention the other taxes, masking as concern for the welfare of workers. While I am sure that anecdotal evidence can be found to justify taking more money from people, the truth is that most folks are happy with their status, as it generally means higher hourly pay, and less income tax overall. Additionally, employers are not burdened with taxes that will inhibit them from adding workers to their jobs.

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