2009-08-05 / Features

Employee Misclassification Costs NYS Millions In Lost Taxes


The practice ultimately hurts all of New York's taxpayers in terms of millions of dollars in lost state revenue, Onorato said. The practice ultimately hurts all of New York's taxpayers in terms of millions of dollars in lost state revenue, Onorato said. New York state is losing millions of dollars in tax revenue because employers are "misclassifying" thousands of workers as independent contractors, state Senator George Onorato charged last week.

The veteran Queens lawmaker, chairman of the senate Labor Committee, said a recent state report on the problem shows it is costing the state millions of dollars in unreported wages.

The findings of the New York State Joint Enforcement Task Force on Employee Misclassification report "clearly show, that action needs to be taken to stop employers from misclassifying workers as independent contractors [because it is] sending millions of dollars in tax revenue into the state's underground economy", Onorato declared.

Onorato said the task force report, which examined a prevalence of employee misclassification in the state's construction industry and other business sectors, found 12,300 instances of the misclassification problem and more than $157 million in unreported wages.

However, Onorato added, "These violations, so far, have led to the recovery of $4.8 million in unpaid employment taxes, more than $1 million in unemployment insurance fraud penalties, more than $12 million in unpaid wages and more than $1.1 million in workers' compensation fines and penalties."

Most of the violations statewide were found in the construction industry, Onorato added. "Employers who knowingly misclassify workers deprive their employees of basic labor protections, including access to unemployment insurance and workers' compensation," he explained.

"Misclassification also hurts honest employers who lose work to companies whose low bids are directly tied to employee misclassification fraud," the Astoria lawmaker added.

The practice ultimately hurts all of New York's taxpayers in terms of millions of dollars in lost state revenue, Onorato said.

To combat the problem, Onorato has introduced the New York State Construction Industry Fair Play Act, under which all construction industry workers would be presumed to be regular employees, rather than independent contractors.

A person would be considered an independent contractor only if he met the following criteria, which are listed in the bill:

The individual is free from control and direction in performing the job;

The services must be performed outside the contractor's usual course of business

The individual must be customarily engaged in an independently established trade, occupation, profession or business that is similar to the service at issue.

The bill would also provide workers with notice of their classification status, protect them from retaliation for reporting violations, and impose penalties against employers and corporate officers who knowingly allow violations to occur, Onorato added.

Senator Neil D. Breslin (D- Albany), a cosponsor of the bill, stated: "When a worker is knowingly misclassified as an independent contractor, the employee is forced to pay the employer's share of withholding taxes and other costs. In short, this type of payroll fraud reduces the workers' take-home pay while lining the pockets of unscrupulous employers. We need to put an end to it."

Another lawmaker, Senator William T. Stachowski (D- Erie County) said he also supported Onorato's legislation. "It will create a more level playing field for honest employers and workers who are wrongfully being denied adequate wages and necessary labor protections," Stachowski said.

Ed Malloy, president of the New York State Building and Construction Trades Council, added his support of Onorato's bill.

The misclassification process "is a serious problem that not only affects employees who are denied the wages and benefits they rightfully deserve, but also the taxpayers of New York state who must foot the bill for lost tax revenue and pick up the slack for health care and unemployment costs", Malloy stated.

Steve McInnis, political director of the New York District Council of Carpenters, stated: "This is first and foremost a taxpayer fairness bill. For too long, not paying taxes has been an accepted practice in some sectors of construction. It's time for those New Yorkers to pay their fair share."

The task force on employee misclassification was created in 2007. It includes the state attorney general's office, state and city comptrollers, the state Departments of Labor and Taxation and Finance, and the Workers' Compensation Board.

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