The term “desperate times call for desperate measures” wasn’t invented from nothing, and it unfortunately rings true in times of economic recession. During the most recent recession, the construction industry slowed down quite drastically, as many residential and commercial jobs were put on the backburner if they weren’t absolute necessities. Due to the lack of income being brought in, some construction companies started to hire workers and falsely classified them as “independent contractors” instead of “employees” so that they didn’t have to pay the correct amount for insurance, taxes, wages, and overtime. Although cutting corners may seem to be an option when times are tough, worker misclassification is never the answer.
Many employers are upholding their professional integrity and following the rules, even though they know that following these less-than-legal practices could save them tons of money. These employers believe that it’s a matter of principle, and that they wouldn’t want to exploit their employees who are working hard by denying them the protection and compensation to which they’re entitled for the jobs they’re doing.
Across the nation, state legislators are narrowing their scope on worker classifications in order to identify and penalize employers who are inaccurately classifying workers and failing to declare income. There’s been a steady increase since 2010, when only 23 states had laws on worker misclassification, to a total of 30 states with misclassification laws in place now.
Beside the fact that implementing these laws protected workers who were being mistreated, this has also been an opportunity for states to collect substantial revenue. Through the institution of these laws, employers who misclassified employees are made to pay restitution for their manipulation of the system.
To give you some figures to put worker misclassification into perspective, according to a report from the Treasury Inspector General for Tax Administration, for every worker who earns a salary of $43,007, the employer will save an average of $3,710 by classifying the worker as an independent contractor. Worker misclassification is a growing epidemic in all industries, but especially in construction. It was discovered after a 12-month audit in Connecticut that 3,487 workers had been misclassified. This meant that workers earned $68.2 million “off the books,” which means that $1.3 million in payroll taxes went unpaid.
We’ll continue our discussion of worker misclassification in our next post—check back with us soon!