New York to Act on Misclassification - June 11, 2007
The New York Times labor beat reporter filed a story in Saturday's paper that must have been assigned reading in Pittsburgh and Memphis this morning.
(New York) Gov. Eliot Spitzer is planning to step up enforcement against thousands of companies that illegally misclassify workers as independent contractors to cheat on taxes and skimp on employee benefits, the state labor commissioner said yesterday.
The commissioner, M. Patricia Smith, said the Spitzer administration was focusing on misclassification because it costs the state a significant amount in unemployment insurance taxes and workers' compensation premiums while denying many workers overtime pay.
"We are developing a plan to address this law-breaking practice, which has been left unchecked for 12 years," Ms. Smith said. She refused to disclose details because the administration has not finished developing the enforcement plan.
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When workers are classified as independent contractors, employers do not have to pay unemployment insurance taxes, workers' compensation premiums or the employer's portion of Social Security and Medicare taxes - typically 7.65 percent of wages. In addition, independent contractors do not have a right to unionize and are exempt from minimum wage and overtime protections, as well as from most discrimination and occupational safety laws. They also do not usually receive the health and pension benefits that other workers receive.
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When Mr. Spitzer was the state's attorney general, he acted vigorously against several companies that misclassified workers. He brought enforcement actions against two supermarket companies, Gristedes and Food Emporium, as well as their delivery companies.
The companies said their grocery deliverymen did not have to be paid minimum wage or overtime, under the theory that they were independent contractors and not employees. Each supermarket company settled for $3 million. Mr. Spitzer also took action against several well-known Manhattan restaurants and a company that provided them with bathroom attendants, accusing them of misclassifying the attendants as independent contractors and sometimes paying as little as $2.14 an hour, well below the federal minimum wage of $5.15 an hour.
The list of states that are focusing on this issue just keeps getting longer. The article also mentions New Jersey Gov. Corzine's efforts.
Sharing some of the same concerns, Gov. Jon Corzine of New Jersey announced a plan last summer to battle misclassification. As part of that effort, the New Jersey Treasury Department and Labor Department adopted a unified definition of an employee and began holding quarterly meetings to coordinate their enforcement.
Each year New Jersey's Labor Department audits about 2 percent of employees, and in 2005 it found more than 26,000 misclassified. The state estimated that this resulted in $5 million in unpaid taxes.
As part of the New Jersey enforcement effort, state officials found that a national package delivery company was routinely misclassifying drivers.
To minimize the practice, the Cornell study urged New York State's government to conduct high-profile enforcement actions and to clarify its definitions of employee and independent contractor. The report also urged New York to do what a three-year-old Massachusetts law does: create a presumption that every worker is an employee, unless demonstrated otherwise.
What's a national package delivery company who routinely misclassifies drivers to do when the tax man - or a whole bunch of tax men - come? Simply referring to an IRS letter dated January 9, 1995 isn't going to satisfy these folks.