No money to conduct random audits? Are furloughs wreaking havoc on your ability to deploy auditors?  One state finds a creative way to uncover a few employees and drum up payroll taxes simply by advertising free self-classification classes! 

 Iowa Workforce Development is advertising assistance with proper worker classification to contractors. Just think in one hour you too can become an expert in worker classification.  You will learn how to tell the difference between an employee and independent contractor and determine if you are properly classified!  The goal at the end of the class is to make you an expert and help the state reduce the number of misclassified workers in Iowa.  “Getting the classification correct is critical for tax, wage, unemployment, workers’ compensation and other employment issues.   Getting it wrong can cost an employer$$”.

This offering is just another example of what lengths the states will go to in order to demonstrate the renewed emphasis of enforcement by federal and state regulators.  Misclassified workers step forward to be reclassified; employers are identified then fined resulting in a new flow of future payroll tax revenues.  What a great way to get the cash flowing into the state and federal governments empty coffers! 

Looks like Larry the Cable Guy has company. Communications companies are being bombarded with worker claims of unpaid overtime , worker misclassification and unlicensed workers. Joseph Valdez, cable installer filed a lawsuit against several cable giants claiming he was cheated out of unpaid wages. Attorneys for the plaintiff have accused the cable companies of worker misclassification and unpaid overtime. The overtime claim is not warranted in a case where the workers were hired as independent contractors. Is this a clear cut case of employer intentional misclassification paying the workers as independent contractors to avoid employer obligations? Perhaps it’s a simple case of misinformed cable companies duped by its sub-contractors providing the installers. Often a company finds itself in the middle of a legal dispute due to ignorance of the subcontractor’s actual relationship with its workers. These companies enter into an arrangement with the subcontractors under the impression the workers are paid as employees after all the contract prohibits them from supplying 1099 contractors. The unsuspecting company is totally unaware of any misconduct. Typically an organization will engage a subcontractor and assume they operate a legitimate business.  Only when a worker files a complaint against the subcontractor do they become painfully aware of a bad employment arrangement and stuck in the middle of a hellish nightmare!

In June a former cable installer filed suit against RCN Corp. claiming he was an employee and not an independent contractor. Fritz and more than 1,000 other U.S. installers are paid as “independent contractors and recognize this arrangement has ripped them off for years.  They claimed they have been deprived of overtime and other employee benefits enjoyed by RCN employees.

An unsuspecting business can sidestep these types of legal problems by taking time to run a thorough check on its subcontractors. A couple of phone calls and a few hard hitting questions about its hiring practices may turn out to be time well spent! 

After two long years of investigating tax cheats the state of Connecticut put the hammer down on companies scamming the payroll taxes and workers’ comp system by misclassifying employees as independent contractors. A closer look at the construction industry revealed worker misclassification and tax fraud are just the tip of the iceberg. Other criminal offenses include worker exploitation, hiring undocumented workers and identity theft to name a few all in the name of greed.  How wide spread is the problem in Connecticut? A team of state labor department employees issued 220 stop work orders during the past 22 months, a rate that far exceeds New York and Massachusetts.

Worker misclassification has plagued our nation for years and the tax cheats appear to be winning. Not so fast.  States like California, New York, New Jersey and Massachusetts state authorities have been winning the war for quite some time. Joining the ranks is Delaware who became the latest state to impose stiff penalties on construction industry employers who improperly classify employees as independent contractors. Enforcement programs or “feet on the street”, a  task force comprised of state and federal agents are how these states are shutting down illegal operators.

The payoff? In New York, authorities recovered more than $4.8 million in unemployment taxes since September 2007, issued more than $1 million in unemployment insurance fraud penalties, and more than $1.1 million in workers’ compensation fines and penalties. In Massachusetts, authorities recovered $1.4 million between fines, unpaid wages and tax assessments.

The dynamic duo is at it again. Agents from ICE and the FBI helped take down one Staffing Firm owner who refused to play by the rules.

Atlanta Georgia stepped up its pace to seek out and take down despicable employers who think they can take advantage of a broken system and get away with it. Former staffing firm owner Laing Yang of Dong Sheng Employment Agency was finally apprehended after an 8 year chase. On July 13, 2009, Yang for his role in exploiting undocumented workers was sentenced to 5 years in federal prison on charges of conspiring to harbor illegal aliens following months of investigation by undercover agents posing as undocumented workers seeking jobs.  Agents captured Yang on tape offering jobs working 7 days a week, 12 hours a day for $1,000 per month. With the help of drivers who would pick up and deliver the workers to restaurants for a fee of $800 to $1,000 per worker Yang on average placed up to 10 workers a week   Court trial testimony revealed Yang harbored over 100 illegal aliens in a 4 month period.

According to officials this is not an isolated incident for Yang who operated an employment agency in Atlanta from 2001 to 2003 and again in 2007 finding jobs mainly for Hispanic workers. Yang is fluent in Spanish and Chinese operating as the broker between the illegal workers and Chinese restaurants owners looking for cheap labor. The transportation fees and payment for Yang’s troubles would be paid up-front by the restaurant owner who simply deducted it from the workers wages!

Back to the Bat Cave Robin….

At a time when the retail industry is losing its choke hold on the average fashonista/shopaholic aka the American consumer trendsetter H&M workers received a pay hike instead of a pink slip. This news is a refreshing change from the regular reports of economic doom and gloom making headlines every evening.  However the news of a pay hike does not come without a hitch. 

Last month Union leaders negotiated wage increases and other benefits for more than 1,000 workers at H&M clothing stores in Manhattan. The package H&M workers received comes complete with a guaranteed 3 percent pay increase the first year, wage negotiations the second and third year and a provision for extra, merit-based increases each year. On top of that the contract calls for a union representative on site every day to remind employers it’s a new era. The Union is hailing this victory as an example of the power of collective bargaining. Retailers won’t be on this celebratory gathering attendee list I guarantee it!

The win comes at a time when Congress and President Obama are under tremendous pressure to back the proposed Employee Free Choice Act (EFCA) legislation. If passed union representatives have vowed to increase its membership in the U.S. by 20 percent each year.

The H&M uion win is clearly just the shot in the arm union leaders needed to encourage all workers to hang on. Just when it looked as if the EFCA bill was about to die on the vine the union showed up and watered it… 

These desperate times call for desperate measures and Livermore city watchdogs are no exception. Local officials and the IRS teamed up to tag home based independent contractors and other small business owners for unpaid business licensure fees. It’s no secret the state, federal and local governments are operating in the red and not likely to miss an opportunity to add a few dollars to empty collection plates. The size of the reward must be worth the chase if authorities were willing to wade through reams of tax data and other countless pieces of paper. If the tax man put forth this much effort to bring in nominal fees what lengths will they go to collect from large benefactors of this underground workforce?

So the next time that independent contractor you hired says “I don’t need a business license” stop!  Don’t just take a claim of exemption check it out!

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.