In Maine we believe in treating people fairly, robust competition and good lives for all. During the last several years, the Maine State Building and Construction Trades Council, which represents 14 different trade organizations, has been working hard on an issue that is hurting families, businesses who follow the law and taxpayers. It’s an issue you may not have heard much about — misclassifying workers.
Misclassifying workers as independent contractors instead of employees takes money out of your pocket and creates an unfair playing field for Maine businesses who follow the rules. In Maine, it is costing taxpayers millions of dollars each year and creating an inequitable business climate.
Among the many roles the Maine State Building and Construction Trades Council plays is advocating for people to be paid a fair wage with benefits, both of which often elude those classified incorrectly as independent contractors when they should have been deemed employees.
To understand how to determine whether someone is an employee or an independent contractor, you need to go through the Maine Department of Labor’s “ABC test.” It really boils down to three points. To be an independent contractor:
• The person performing the service must be free from control or direction over the performance of the service.
• The service must be outside the usual course of business for which the service is performed.
• The person must customarily be engaged in an independently established trade, occupation, profession or business.
Otherwise, that person is an employee.
An independent contractor receives a 1099 form and nothing is deducted for Social Security, workers’ compensation and unemployment insurance. State and federal taxes are not deducted. The independent contractor is solely responsible for all of it.
In these tough economic times, we are seeing more and more situations where people are misclassified as independent contractors, but when the jobs end, they increasingly need unemployment pay or social services. No money has been paid in leaving the burden at the feet of the taxpayers. In addition, there is lost tax revenue, which we all know the state and federal government could use right now.
This is one of the many reasons Gov. John Baldacci created the Joint Enforcement Task Force on Employee Misclassification. According to a December 2009 study by Cornell University, 45 percent of Maine construction workers are potentially misclassified. A study by Harvard looking at Maine from 1999 to 2002 revealed similar numbers with the total estimate of lost state and federal tax dollars in the millions.
In looking at this issue, it’s important to remember that Maine businesses that play by the rules should not have to shoulder the burden. Those employers who choose to misclassify workers as independent contractors are affecting businesses not only that play by the rules but also each and every taxpayer.
New York, Massachusetts, New Jersey, Michigan and Iowa have recognized the misclassification problem and taken aggressive steps to address it. In New York, the former attorney general initiated a task force to conduct sweeps. Within the first four months, the task force identified more than 117 violations of misclassified workers. The New York state task force found more than $19 million in unreported wages.
In July 2009 according to the same Cornell University study, the task force found more than 12,000 people who were determined to be misclassified as independent contractors when they should have been employees.
Maine’s Department of Labor has worked with a number of other state agencies as part of the governor’s task force. This week they will issue the results of their work during the last year.
The Maine State Building and Construction Trades Council is grateful to the governor for convening the task force and dedicating a year’s worth of work to looking at this issue. This report will ultimately be a reflection of where the state stands on misclassifying employees. We remain hopeful that this report will be a spring-board for action.
John Napolitano is president of the Maine State Building and Construction Trades Council.