Independent Contractor War

The state of Michigan went public with the news that it has joined California, Pennsylvania and others along side the IRS in the fight against this underground workforce. Employers who intentionally misclassify workers to save money are being targeted. The IRS is leading the charge and hot on the heels of the misclassified independent contractors and the employers who use them.  Michigan is not late to the party but in fact was the first of 29 states to sign a memorandum of understanding with the IRS outlining ways for the state and federal agencies to work together.

According to an unofficial report obtained by the Associated Press yesterday Michigan auditing officials discovered a staggering number of misclassified workers who were paid as independent contractors during an audit.

Although actual dollars in wages of the misclassified workers in the state of Michigan are unknown the Government Accountability Office reports that employee misclassification on the federal level accounted for the underpayment of an estimated $2.72 billion in Social Security taxes, unemployment insurance taxes and income tax and clearly Michigan has contributed to these numbers.

The weight of this scheme has negatively impacted everyone but the employers who got away with it as evidenced by the financial burden bourn by employers who are doing the right thing, workers on all sides and public sponsored programs that faded into the background due budget cuts. The broken independent contractor model is not unique to the state of Michigan but an actual pandemic across the nation. You can't open a newspaper, turn on the news or read my blog without hearing about a number of employer misclassification cases and they continue to stack up.

 
I think these types of headlines coupled with the lure of the potential revenue dollars as a direct result of huge fines and penalties will be reason enough for these states to maintain the chase. With the tax man pushing at the state and federal level keeping Michigan and the rest hopping may just be the ticket  that moves the states in the red closer to the black.