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.

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