Gov. McCrory took a step in the right direction this afternoon on the issue of employee misclassification — the persistent problem that plagues thousands of North Carolina businesses wherein workers are improperly treated as contractors when they ought to be employees. As we have reported on multiple occasions this year (and as Raleigh’s News & Observer documented a while back in its special series “Contract to Cheat,”) this is a huge problem that harms workers and honest businesses and robs the state of tax revenue. Doug Burton, a Triangle area contractor put it this way:
“Treating employees as independent contractors when in fact they are regular employees is a fraudulent business practice that has become an epidemic. Some call this ‘misclassification,’ but it is in fact fraud that lets these cheating businesses – many from out of state – off the hook for basic protections, including minimum wage, overtime pay, workers’ compensation, health and safety protections, unemployment insurance, federal and state tax withholding, social security withholdings and matching and more.
This fraud is a growing problem that harms workers, puts a strain on government resources and provides an unfair advantage when these unscrupulous employers compete with law-abiding businesses. I see it every day. Other legitimate business owners see it, too, when they are regularly underpriced for jobs and there is no other explanation for such bids other than cheating. When cheating businesses classify employees as independent contractors to reduce labor costs, legitimate business and workers alike lose out.”
Today, to his credit, the Governor issued an order that seeks to attack this long-neglected problem. This is from the news release that accompanied the order:
“Executive Order 83 directs the Chairman of the Industrial Commission to appoint a Director to oversee the new section’s activities. The Director will serve as the primary point of contact for reported instances of employee misclassification and will refer all reported instances to the relevant state agencies for investigation and enforcement action.
Governor McCrory has directed the Department of Revenue, the Industrial Commission, and the Division of Employment Security to each appoint a liaison who will work directly with the Director to ensure that their respective agencies are taking proper enforcement actions and sharing all necessary information. The executive order also provides an opportunity for improved coordination and collaboration between the new Employee Classification Section and the Department of Labor and Department of Insurance.”
It’s important to note, however, that the order is far from all that is necessary. Legislation is still required to institute appropriate fines and penalties and the authority for state officials to issue “stop work” orders against cheating employers. Let’s hope lawmakers follow up in the 2016 legislative session. Until then, however, this is a promising beginning and a small bit of good policy news to end the year.