State tackles worker misclassification

Posted Feb. 28, 2010, at 8:16 p.m.

AUGUSTA, Maine — The Governor’s Task Force on Employee Misclassification has concluded that the state is losing tax revenue as the result of workers being misclassified as independent contractors and that some employers are paying more in unemployment taxes because of misclassification.

“As a result of misclassification, Maine is losing substantial income tax revenue,” a report by the task force states. “Reducing misclassification through outreach and better enforcement of the law will help level the playing field for honest employers in the competitive marketplace.”

The report defines misclassification as an employer’s designation of a worker as an independent contractor instead of an employee.

For the government, there are significant financial effects. Labor Department analysts have concluded tax losses to the state could be as much as $36 million a year.

For employers that properly classify workers, the improper classification by other employers means higher unemployment taxes and increased workers compensation premiums.

“This issue has been around for years,” Gov. John Baldacci said when he received the report last week. “I want to see if I can cobble together some additional resources to address this.”

Union groups have been attending the meetings of the task force and want action far stronger than more education and awareness programs. Maine State Building and Trades Council President John Napolitano issued a statement urging more enforcement.

“We have been talking about this issue for years,” he said. “The time for talking about something we all know is going on is over, it’s time to do something about it. We were hoping that there would be immediate, additional enforcement.”

The unions are upset because the use of independent contractors and cash payments for work “under the table” is believed to be widespread, particularly in the building and construction area.

But employer groups argue steps are already being taken by business to address the problems. John O’Dea, the CEO of Associated General Contractors of Maine, said his group worked last year to change the law clarifying the definition of independent contractors in his industry.

“Misclassification is a fancy word for people working under the table,” he said. “It is a serious problem, it hurts our members, and we have taken steps to address the problem.”

O’Dea acknowledged there have been problems as contractors work through the new law, which took effect Jan. 1 and is just being implemented, but he said it would help reduce misclassification in his industry.

“The reason why state efforts have not been successful in addressing the problem is because they are overreaching and not industry specific,” he said. “There is a world of difference between the truly independent tradesman, like a plumber, that shows up at a job site and does work and a drywall installer that does that work for the same company day in and day out and no one else.”

Peter Gore, a vice president of government affairs for the Maine State Chamber of Commerce, agreed the issue is important. He is concerned employers will be asked to pay for increased enforcement.

“Instead of raising the cost to employers, they should reprioritize the resources they have,” he said. “Now is not the time to raise the costs to employers.”

Gore is concerned with the discussion of raising the assessment on employers to add staff at the Workers’ Compensation Commission. He said with federal labor officials and the IRS discussing ways to cooperate on enforcement, the state should look at following that lead.

“I am also very concerned that this would erode from their core mission which has always been dispute resolution,” Gore said. “I think to move away from that would be a mistake.”

The Legislature’s Labor Committee is considering a proposal to increase the assessments on employers to add staff at the commission to increase enforcement. That move is an estimated $162,000 a year.

Whether the governor will support that move is in question. He told the task force that efforts to improve compliance with the law would need to stay within existing resources.

“We are not talking about passing any more laws or any more regulations,” he said. “These are laws and regulations that already exist in statute.”

The governor said most employers in the state follow the law and do not misclassify employees. He said for the small number that do, the state will improve its education and outreach efforts and will use its existing enforcement tools to seek compliance.

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