By Jason Clayworth, The Des Moines Register
Iowa
would spend $771,000 to hire nine employees to keep employers from
abusing contract labor laws under a proposal that Gov. Chet Culver said
today he supports.
Advocates of greater state enforcement
say employers sometimes improperly classify workers as independent
contractors and that may make it easier to employ illegal immigrants.
Employers
who illegally misclassify workers avoid paying their share of Social
Security, unemployment taxes, workers' compensation coverage and health
insurance benefits, according to a task force report that Culver
released today.
Worker advocates have long said abuse of the
law not only fosters unsafe and unfair compensation for workers, but
also creates a competitive disadvantage for employers who hire legally.
The cost to the state is millions of dollars in uncollected taxes and
Culver said enforcement could help return a significant amount of lost
revenue to Iowa.
"Any way that the state can generate revenue, I'm for," Culver said in a news conference today.
Culver, in July, created the Worker Misclassification Task Force to investigate the problem.
The panel made six recommendations, including enhanced enforcement. It
did not estimate the lost revenue to Iowa but noted that the last
Internal Revenue Service study in 1984 estimated the national tax loss
at $1.6 billion, or roughly $2.72 billion in inflation-adjusted numbers.
Elisabeth Buck, director of Iowa Workforce Development, is the
chairwoman of the five-person task force. Her department did a small
sample in the construction industry and found about 15 percent of
businesses had misclassified workers.
Employers who fail to
register employees can face a $500 fine but no penalty for improper
classification except to pay back taxes and other fees. There are,
however, federal laws that can assess thousands of dollars in fines to
the violators.
Buck said her department currently doesn't have the resources available to focus on misclassification.
Culver said independent contractor reform is one of his priorities
"Employers who do this take the low road to unfair financial advantage
over business who play by the rules," Culver said. "Workers are the
ones who pay the price."
Here are the task force's recommendations:
• Create a special Misclassification Unit within Iowa Workforce
Development to address misclassification issues through research,
investigation and enforcement. The Task Force believes the creation of
this unit may result in additional tax revenues to the state treasury
that could exceed the expense of the unit.
• Develop
misclassification educational materials and outreach efforts, such as a
hotline and Web site for the general public. This effort should be led
by the new misclassification unit and can be completed at little to no
cost.
• Review state agency regulations, including those
of the Iowa Department of Revenue and Finance and IWD, to determine to
what extent agencies can share misclassification information.
• Aggressively pursue a data sharing agreement with the IRS to track instances of employer misclassification of workers.
• Retain the current, similar "common law" definition for independent
contractor/employee in use by the applicable state agencies for at
least one more enforcement year. The task force said any required
statutory review and potential change should come after a year of
enhanced enforcement efforts.
• Reconvene the
Misclassification Task Force after a year of enhanced enforcement
efforts to review any suggested changes in laws or regulations.
A copy of the report can be found at www.iowaworkforce.org.
Avoiding costs
Some of the costs employers often sidestep by classifying employees as seasonal or independent workers:
• Federal payroll taxes
• Unemployment insurance
• State and city taxes
• Workers' compensation
• Health insurance
• Vacation and sick leave
Source: National Employment Law Project