Workers in North Carolina received some welcome news last week – the signing of a Memorandum of Understanding between the NC Industrial Commission and the U.S. Department of Labor that should make it easier for both agencies to investigate cases of employee misclassification. The term misclassification refers to workers whose employers have incorrectly treated them as independent contractors rather than employees.
Misclassified workers miss out on many of the benefits of employees, including worker’s compensation, unemployment insurance, and overtime pay. But the damage goes beyond the harm to individual workers—the state loses tax dollars because employers are not paying their share of payroll taxes, a problem that is well documented.
Surprisingly, employee misclassification is not illegal in North Carolina. While there have been efforts to address this, the General Assembly has not passed legislation that would impose penalties on employers who misclassify workers.
The good news, however, is that workers who are incorrectly treated as independent contractors now have the option to make a complaint with the Employee Classification Section of the NC Industrial Commission. The Section coordinates with other state agencies so they may undertake their own investigations into whether the employer owes unemployment taxes, should be paying overtime to its workers, has not been properly paying payroll taxes, or needs to purchase workers’ compensation insurance.
The new MOU with the U.S. Department of Labor will also ensure that evidence of misclassification is shared between the state and federal governments. It’s a good step toward the broader reform that is needed to protect workers and provide revenue to the state.