Misclassified Workers - Not Just a Federal Offense
As we have been discussing over the past several weeks has been the US and Canadian Governments beginning to look at new revenue opportunities by pursuing
companies who mis-classify workers thus "avoiding" payroll taxes. Malicious intent or not will not deter the authorities from pursing these opportunities at the business level.
Now if that wasn't enough to make you cringe, the individual states are jumping into the fray. Canadian Provincial pursuits cannot be far behind.
The excerpt below is from a release from the state of Indiana:
INDIANAPOLIS — A bill that Republicans hope will roll back business tax increases and Democrats want to encourage job creation has become the Indiana General Assembly's stingy first domino that refuses to fall.
If an agreement is reached soon, another handful of bills is ready to sail through the Democratic-controlled House and Republican-led Senate in its wake. Then, state lawmakers can adjourn for the year and head home.
The House will meet today for the first time since Speaker Patrick Bauer, D-South Bend, surprised members last week by adjourning for six days. The GOP-led Senate, which took only the weekend off, also will meet.
Meanwhile, the important action is happening behind closed doors, where Bauer, his close deputies and Senate leaders are attempting to broker compromises on several issues before Sunday's constitutionally mandated date for adjournment.
Republicans want to delay by one or two years the onset of higher premiums that businesses must pay into the state's unemployment insurance fund. To get that delay, they have offered Democrats 13 separate items the party has sought, such as business tax credits.
But Democrats are holding out for one more item. They want to sharply stiffen the penalties on businesses that mis-classify workers as independent contractors to dodge payroll taxes.
Republicans on Tuesday were resisting. Sen. Brandt Hershman, a Lafayette Republican who is one of the four joint House-Senate conference committee members involved in negotiations, who said the added regulation would have a "chilling effect" on businesses.
Hershman pitched a compromise that would have a state agency study the issue, draft guidelines for enforcement and deliver its results to lawmakers by November.
"I think it's a very reasonable procedure and very common to try and deal with a complex issue," he said.
But that didn't satisfy House Democrats.
"As legislators, that's our role. We are the ones that should define what's to take place," said House Labor and Unemployment Chairman David Niezgodski, a South Bend Democrat who is one of the conferees on Senate Bill 23.
His party wants to enhance enforcement and levy greater penalties against employers found to be inappropriately classifying workers. Doing that, he said, would "throw dollars into the unemployment insurance fund."
Most employee misclassification takes place in the construction industry, said Marc Lotter, a spokesman for the Indiana Department of Workforce Development.
He noted that Indiana has ranked consistently among the nation's leaders in identifying misclassified workers. The state pinpointed 71,000 such workers in a five-year period from 2004 to 2008.
In that time period, the state has taken in $5.1 million in taxes from businesses that were classifying workers wrongly, but paid out $28 million in jobless benefits to workers who were misclassified, Lotter said.
Indiana's unemployment fund is bankrupt and has borrowed $1.7 billion from the federal government to stay afloat.
With jobless rates hovering around 10 percent, it’s not an unusual predicament, and Indiana’s neighbors are borrowing, as well. So far, the federal government has loaned Kentucky $714 million, Illinois $1.8 billion, Ohio $2 billion, and Michigan $3.6 billion.
Unless legislation Indiana lawmakers passed last year is delayed, businesses will begin making payments under the increased tax rates at the end of this month.
The Indiana Department of Workforce Development estimates an extra $350 million would be collected this year under the higher rates.
Businesses face an unemployment benefits-related tax increase of about $50 million statewide next year, regardless of what the General Assembly decides.
The annual federal fees employers pay now – $56 per worker, per year – will increase by $21, to $77 per worker, per year, starting with the payments due in January 2011. The tax hike is the federal government’s mechanism to prod states into paying down their debts.
When states borrowed from the federal government during the recession of the early 1980s, Congress waived that federal increase for states that were making progress toward paying down their debts.