State authorities need to direct more resources toward the effort to crack down on subcontractors who fail to pay employee taxes and workers’ compensation insurance.
As the Hartford Business Journal’s Diane Weaver Dunne reports today, a team of state labor department employees issued 220 stop work orders during the past 22 months, a rate that far exceeds neighboring states such as New York and Massachusetts.
But despite the highly laudable work of those investigators, Connecticut’s big-picture efforts lag significantly behind in the collection of back taxes and fines, primarily because the state does not have the kind of comprehensive enforcement program that those other states employ.
The problem of employees being misclassified as independent contractors — and the subsequent failure to pay proper taxes — affects many Connecticut businesses that play by the rules but find themselves losing out on jobs that other companies can do for less money.
A number of general contractors who find themselves high on the state’s list of companies with the most stop-work orders also complain that a less-than-comprehensive enforcement program leaves the incorrect impression that they don’t make any effort to weed out subcontractors who break the law.
Connecticut seemed to recognize the importance of stepping up its regulatory efforts when the legislature passed a law in 2007 that provided the labor department with power to issue stop work orders.
Subsequently, lawmakers authorized the establishment of a volunteer Workers Misclassification Advisory Board to be comprised of five state agencies and various construction management and labor representatives.
Connecticut’s board met first on Jan. 16. It has not met again.
In February, Gov. M. Jodi Rell proposed that the Employee Misclassification Advisory Board — along with 70 state boards and commissions — be eliminated.
Much of the momentum that the state had generated in passing the 2007 law and the subsequent establishment of the committee has been stifled by inactivity and shifting priorities.
For people like Donald Shubert, president of the Connecticut Construction Industries Association, the lack of continued commitment is deeply disappointing.
Shubert noted that the panel included Chief State’s Attorney Kevin Kane, Attorney General Richard Blumenthal and labor department Commissioner Patricia Mayfield — powerful figures who represent the kind of interagency collaboration found in New York and Massachusetts.
Consider how those efforts have paid off. In New York, authorities recovered more than $4.8 million in unemployment taxes since September 2007, issued more than $1 million in unemployment insurance fraud penalties, and more than $1.1 million in workers’ compensation fines and penalties. In Massachusetts, authorities recovered $1.4 million between fines, unpaid wages and tax assessments.
Economist William Alpert, a University of Connecticut professor, estimates that the state could be losing up to $1.5 billion in state income tax revenue alone from employee misclassification and workers being paid off the books.
In a state with a deep budget deficit and businesses that are struggling to survive, it is hard to fathom why stronger enforcement of employee-classification laws is not a priority. Connecticut’s business community should be outraged that the efforts made months ago have dissolved.
The time has come for Connecticut authorities to put a task force back in place to support the labor department’s work.
