The state board charged with cracking down on employers who fail to pay employee taxes and workers’ compensation premiums will meet on Nov. 5, following a 10-month hiatus.
Attorney General Richard Blumenthal recently called for the reactivation of the joint task force following a Hartford Business Journal investigation that revealed the board’s lack of activity. The Journal’s examination also showed how Connecticut significantly lags behind in its enforcement efforts compared with neighboring states that have established comprehensive, multiagency approaches.
The board last met on Jan. 16, before Gov. M. Jodi Rell’s decision to abolish 70 state boards and commissions as a cost-cutting strategy. The governor’s office declined to comment.
Worker misclassification occurs when an employer illegally defines a worker as an independent contractor or when that worker is paid under-the-table in cash. Many employers do it as a strategy to avoid paying taxes and workers compensation.
The law defines an employee as a worker who is subject to the control and supervision of the employer and renders services that are integral to the employer’s business. In that case, the employer must pay workers’ compensation insurance and employee taxes.
The Hartford Business Journal examination also found that a half-dozen general contractors are responsible for nearly half of the state’s 270 stop-work orders issued since October 2007. Those orders were issued after inspectors found subcontractors on the sites who had employed misclassified workers. The investigation also found that Connecticut’s enforcement efforts are hindered by a lack of staffing.
By comparison, New York’s interagency task force, convened in 2007, has identified $4.8 million in unpaid unemployment taxes, issued more than $1 million in unemployment-fraud penalties and issued more than $1.1 million in workers’ compensation fines and penalties. Its task force also discovered more than $12 million in unpaid wages.
Massachusetts, which modeled its task force after New York’s, recovered $1.4 million fines, unpaid wages and tax assessments within its first 12 months.
Connecticut has collected $92,000 in fines since October 2007, although its number of stop-work orders far surpassed the number issued in New York and Massachusetts.
Connecticut’s efforts are hindered by an inability of state agencies to electronically share data and the lack of a look-back provision in it statutes authorizing the agencies to fine businesses from the time they begin to violate the law, not when the state first detects the violation.
Gary Pechie, director of DOL’s division of wage and workplace standards, said that despite not having the funds to create a shared database, his division is now working more closely with the state’s Department of Revenue Services.
Investigators have repeatedly found that if an employer is breaking one law, it is most likely breaking other laws as well.
Blumenthal asked Patricia Mayfield, commissioner of the state Department of Labor, to renew efforts to convene the Joint Enforcement Commission on Employee Misclassification in a Sept. 30 letter.
“I feel very strongly that these misclassification laws be more vigorously enforced,” said Blumenthal. “My recommendation has been somewhat stymied by a lack of funds. But we will continue pressing it.”
A recent Government Accountability Office (GAO) report supports the view that improved interagency coordination, outreach and targeting ensures better detection and prevention of worker misclassification.
The problem is also prevalent and growing, according to the GAO, which found that the incidence of worker misclassification ranges between 10 percent and 30 percent of the businesses it audited.
The practice costs taxpayers millions of dollars. A recent economic study has found that the costs of worker misclassification may be enormous.
Including the underground economy, where employees are paid under-the-table in cash, and taking into consideration the expenses for uncompensated medical care, the total cost to “Connecticut citizens jumps to almost $10.5 billion annually,” according to a study by William Alpert, .professor of economics at the University of Connecticut. The report was conducted for the New England Regional Carpenter’s Union.
Although the exact cost to businesses that play by the rules has not been quantified, many businesses report that they are unable to compete with contractors who do not pay employee taxes and workers’ compensation.
“When an employee is misclassified, tax revenues are not reported or paid and the burden of uncollected taxes shifts to other taxpayers,” according to a February 2009 report by the U.S. Treasury Inspector General for Tax Administration.
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