Crackdown on Misclassifying Employees
We have received a few emails asking whether or not our services will be affected by the new laws in PA, NH, and other states. We do not try misclassifying employees purposely to save an employer on Workers Comp premiums. We feel that employers should pay for their fair share but not one penny more.
The two articles below deal with misclassifying employees as subcontractors. This is being looked at more closely by all states. If you are unsure about how to classify employees, get in contact with us ASAP.
This does not mean that you cannot question your current employee Classification Codes for Workers Comp along with other parts of your Workers Comp policy.
Pennsylvania bill to make misclassifying workers a felony progresses
Pittsburgh Business Times
A Pennsylvania bill that would make it a third-degree felony to intentionally misclassify an employee as an independent contractor passed the House Monday and is headed to the Senate for consideration.
The legislation, sponsored by Rep. Bryan R. Lentz, a Delaware County Democrat, would establish the presumption that workers in construction are employees and place the burden on employers to prove otherwise to the Department of Labor and Industry.
“Not only are these workers being shortchanged in pay and benefits, they are being put in legal jeopardy,” Lentz said. “Other workers unknowingly sign away their benefits and workers’ compensation when they are told they must sign or risk losing their job.”
To classify a worker as an independent contractor, an employer would have to show the worker is free from control or direction to perform the service, the service is outside the usual course of the business and the person is customarily engaged in an independently established trade, occupation, profession or business. In addition to a felony charge, employers that intentionally misclassify workers would also face fines. Misclassification because of negligence would be a summary offense with fines.
“It simply is a fairness issue,” Lentz said. “Employers should not be able to do business in Pennsylvania without paying the taxes that everyone else pays, and without providing the protections and benefits to their workers that Pennsylvania law requires.”
While the financial toll hasn’t been quantified in Pennsylvania, misclassification of workers results in Illinois losing $34.8 million annually in workers’ comp premiums in its construction industry alone, according to estimates. New York loses as much as $176 million annually in unemployment insurance premiums. Massachusetts is estimated to lose between $12.6 million and $25 million annually in unemployment insurance premiums and between $91 million and $152 million in income taxes.
N.H. targeting firms that misclassify employees as contract workers
Fosters
Article Date: Wednesday, June 11, 2008
CONCORD – Four state agencies will be working cooperatively to help ensure that the rights of all workers are protected from the illegal practice of misclassification. The New Hampshire Department of Labor, New Hampshire Employment Security, the New Hampshire Insurance Department and the New Hampshire Department of Revenue Administration have met as part of a task force that will address complaints regarding companies circumventing state laws by misclassifying employees as independent contractors.
This illegal practice denies workers basic rights as employees and hurts the competitiveness of law-abiding businesses. Department of Labor Commissioner George Copadis said, “Each year the State of New Hampshire loses valuable employment taxes and unemployment revenues due to the misclassification of workers. The time has come for our agencies to join together to crack down on these illegal practices for the betterment of workers and all those businesses which operate honestly in our state.”Businesses and individuals that knowingly defraud any insurance carrier relative to workers’ compensation insurance policy may face criminal prosecution.
In addition, companies that don’t provide proper workers’ compensation coverage for their employees may be assessed a civil penalty of up to $2,500 along with up to $100 per employee for each day of noncompliance, and may also face criminal prosecution. New Hampshire Employment Security may fine businesses up to $25 per day per misclassified employee and a possible additional discretionary $1,000 flat fine. The New Hampshire Department of Revenue Administration would require repayment of understated revenue plus up to 25 percent additional tax plus interest.
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