Why we need a task force on employee misclassification
Business manager of Carpenters Local 1996, Augusta/Portland
The Joint Enforcement Task Force on Employee Misclassification was established in 2009 by Gov. John Baldacci after several years of investigating the effect misclassifying employees has on every Maine taxpayer. When misclassification of employees occurs, the state loses out on revenue from workers’ compensation, unemployment insurance and state, federal and Social Security taxes, adding up to millions of dollars annually. This also gives the unscrupulous contractor a big advantage by making it impossible for a legitimate contractor to gain work.
The Carpenters Union encouraged Harvard University to perform a yearlong investigation with the Maine Department of Labor in 2005, which determined that 14% of employees were misclassified. This means 14% of employers/workers were not paying proper taxes, thus costing the state millions of dollars in unpaid revenue. In 2007, the Maine DOL performed its own investigation on employee misclassification and found the rate had shot up to 49%. The state estimates annual losses of approximately $40 million in Maine. These studies also exposed the “underground economy” as a haven for deadbeat parents who skirt their child support responsibilities, as well as others who may be wanted by law enforcement.
The tax burden does not just go away, it gets shifted to the responsible companies and workers paying proper taxes. When legitimate companies do not get projects (due to their 30% disadvantage on their bid), they are forced to lay off workers who then collect unemployment, again shifting the burden to the taxpayer. Further, if a worker is injured on a job site, he or she would normally be covered by workers’ compensation. However, if the worker is misclassified as an independent contractor, he or she is not covered and will then go to a hospital and receive treatment with no health insurance, thus forcing the hospital to be reimbursed by the state through uncompensated health care (currently totaling $250 million). Additionally, this increases workers’ compensation costs for responsible contractors (if only a few companies are carrying the cost, the rates have to increase).
Gov. Baldacci’s executive order establishing the Joint Enforcement Task Force on Employee Misclassification came as a result of meetings with the Carpenters Union and business leaders in the state. The task force was charged with establishing one definition of an employee (there were three different definitions at the time) and to open the lines of communication between unemployment insurance, workers’ compensation and Maine Revenue Services to maintain fair competition for all businesses. It also set up public question and answer meetings in Bangor, Augusta and Portland to educate/address issues with a pro-business approach. These meetings showed that some businesses did not realize they were not operating at the level they needed to be, as misclassification of employees had become the norm. This approach simplified reports for companies, created accessibility for input, as well as held companies accountable for their cost of doing business.
In 2011, Gov. Paul LePage invoked an executive order to abolish this task force, which was designed to streamline the way business is done in the state. Gov. LePage claimed “it caused uncertainty in the business community.” However, “the business community” is the very people who requested the task force in the first place. He went on to say, “This creates another layer of bureaucracy,” which is absurd. State agencies need to work together to streamline the flow of information in order to move business along. To revert back to one agency not knowing what the other is doing will double, if not triple, the necessary paperwork, creating uncertainty in the business world and reopening loopholes for companies that choose to commit tax fraud. This defines bureaucracy at its finest. This new executive order promotes poor business, not good business, and is a major step backward for Maine people.
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