Employers are misclassifying so many workers’ jobs that New York is losing millions of dollars. To combat this loss, the Senate Labor Committee has decided to track down and prosecute businesses that misclassify workers.
Worker misclassification is used to not only avoid paying appropriate levels of workers’ compensation insurance, but it is also used to avoid paying fringe benefits and payroll taxes. Some workers are paid under the table to supplement what they are paid “on the books”.
This practice not only shorts the state of much needed funds, but also makes it that much harder for legitimate businesses that play by the rules to compete effectively with companies that cheat. It is much easier for companies that underreport their staff and salaries to undercut legitimate businesses for contracts.
A report released in 2007 by Cornell University estimated that the underreporting of unemployment wages in New York added up to over $4.2 million. The industry most responsible for underreporting employees and wages was the construction industry, accounting for 45,000 of 704,785 so-called independent contractors.
The chair of the New York State Workers’ Compensation Board Robert E. Beloten has added that the practice of misfiling workers’ compensation occupation codes – one way that businesses try to reduce their workers’ comp insurance premiums – is another form of misclassification.