Employers reduce labor costs by misclassifying workers who should be on their payroll as employees, and instead calling them independent contractors. This employer payroll fraud was exhaustively documented by Mandy Locke and her team of reporters in the News & Observer’s series “Contract to Cheat” last fall. It costs the state millions of dollars in unpaid payroll taxes, leaves our unemployment insurance system without revenue to cover unemployed workers, and deprives workers of health insurance,
One of the most damaging consequences of employer payroll fraud is that injured workers are without workers’ compensation insurance. By purchasing so-called “ghost worker” policies, employers can avoid providing real coverage to their workers. Too often, this practice takes place in dangerous industries like construction, which just last year experienced 19 worker fatalities in North Carolina.
Tracking down what appears to be a negligible problem with worker’s comp claims is a misdirected effort. There are many things the General Assembly could do to combat payroll fraud, including worker’s compensation fraud, including increasing penalties for employers who violate the law, beefing up state agency enforcement and collaboration, and providing better enforcement tools such as stop work orders.