Millions In Misclassified Workers’ Taxes May Be Available To State
Resources to track and collect money from 10 percent of workforce remain scarce
Wed, 17 Feb 2010 12:22:00
In 2006, Tony LaCava stood outside a construction site in the Bronx for two days and filmed as 40 people worked on the scaffolding.
But when LaCava, a representative for the Bricklayers and Allied Craftworkers Local 1, examined the payroll sheets for the project, he found only 15 people listed as having worked those days.
LaCava said he reported the problem and submitted the video and pay sheet to numerous city and state agencies, but heard nothing else.
Three years later, Lettire Construction—the same general contractor used at the Bronx site—was awarded the first federal public housing stimulus contract in the nation for a project in Manhattan. The company has since come under federal investigation for allegedly underpaying and misclassifying full-time workers as general contractors.
Across the construction industry, employers who follow the rules say they struggle to compete for bids against employers who misclassify workers. Businesses in compliance, they note, have to pay higher taxes for full-time workers.
At the same time, unions have trouble competing for jobs when businesses can hire illegal immigrants and skirt around a host of laws designed to protect workers.
“The employers can’t compete and the unions can’t compete,” LaCava said.
But cracking down on these violations has proven difficult. In the construction industry, 15 percent of the workers are misclassified as independent contractors, according to a Cornell University study.
Assembly Labor Committee chair Susan John and Senate Labor Committee chair George Onorato have introduced legislation that would shift the burden of proving employee status from the construction workers to the employer, in an effort to crack down on such employers.
First offenses would cost $10,000 per employee, second offenses would cost $20,000. These fines would go into a fund to pay for more Department of Labor inspectors. Any excess money would go to the Department’s budget for the next year. Employers could also be subject to a criminal misdemeanor charge.
Though no one has testified against the bill at either the Senate or Assembly hearings against the bill, its backers insist opponents in the business community do exist.
A spokesman for Gov. David Paterson declined to comment on the bill, since it has not yet reached the governor’s desk.
The problem goes beyond the construction industry: an estimated $400 million in taxes will go uncollected from employers who dodge payroll, unemployment insurance and workers’ compensation taxes. Over 10 percent of the state’s total private-sector workforce is misclassified, according to the Cornell study, which found misclassification to be most prevalent in the construction industry.
Many lawmakers see recovering the funds as a big step towards restoring the health of the state’s heavily indebted unemployment insurance trust fund and its nearly-broke workers’ compensation fund.
Getting the resources to catch tax cheats, however, has proven difficult so far.
Last year, a team of 40 investigators at the New York State Workers’ Compensation Board uncovered $32 million in unpaid taxes from employers that had erroneously listed their workers as independent contractors—or about $800,000 per investigator.
That was only the beginning, said Robert Beloten, chairman of the state Workers’ Compensation Board.
“I think it’s just a drop in the bucket, what’s been uncovered,” Beloten said, pointing out that the 40 investigators are responsible for all of the state’s 62 counties.
In 2007, then-Gov. Eliot Spitzer set up a task force to coordinate and share information between the agencies that enforce the law—the Workers’ Compensation Board, the Department of Tax and Finance and the Department of Labor. There has been a marked increase in the number of labor violations reported to the state since, but task force leader Jennifer Brand said she only has the manpower to make examples of the worst offenders.
With the budget crunch limiting enforcement capabilities, state agencies have been getting creative in trying to enforce the existing laws. One Department of Labor pilot program, New York Wage Watch, has sought to co-opt labor organizers and activists to do outreach to onsite workers, and to report any violations to the agency.
Paterson’s budget has brought further concerns, with 10 percent cuts to the overall budgets of the three agencies that work together to crack down on the scofflaws.
“In a budget crunch, we should cut the things that don’t work,” said Assembly Member Rory Lancman, who serves on the Labor Committee. “But when you’re getting $32 million from 40 investigators, that’s the kind of investment that Goldman Sachs would buy shares in.”
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ABOVE: Susan John and George Onorato have introduced legislation that would fine employers who misclassify construction workers.
But when LaCava, a representative for the Bricklayers and Allied Craftworkers Local 1, examined the payroll sheets for the project, he found only 15 people listed as having worked those days.
LaCava said he reported the problem and submitted the video and pay sheet to numerous city and state agencies, but heard nothing else.
Three years later, Lettire Construction—the same general contractor used at the Bronx site—was awarded the first federal public housing stimulus contract in the nation for a project in Manhattan. The company has since come under federal investigation for allegedly underpaying and misclassifying full-time workers as general contractors.
Across the construction industry, employers who follow the rules say they struggle to compete for bids against employers who misclassify workers. Businesses in compliance, they note, have to pay higher taxes for full-time workers.
At the same time, unions have trouble competing for jobs when businesses can hire illegal immigrants and skirt around a host of laws designed to protect workers.“The employers can’t compete and the unions can’t compete,” LaCava said.
But cracking down on these violations has proven difficult. In the construction industry, 15 percent of the workers are misclassified as independent contractors, according to a Cornell University study.
Assembly Labor Committee chair Susan John and Senate Labor Committee chair George Onorato have introduced legislation that would shift the burden of proving employee status from the construction workers to the employer, in an effort to crack down on such employers.
First offenses would cost $10,000 per employee, second offenses would cost $20,000. These fines would go into a fund to pay for more Department of Labor inspectors. Any excess money would go to the Department’s budget for the next year. Employers could also be subject to a criminal misdemeanor charge.
Though no one has testified against the bill at either the Senate or Assembly hearings against the bill, its backers insist opponents in the business community do exist.
A spokesman for Gov. David Paterson declined to comment on the bill, since it has not yet reached the governor’s desk.
The problem goes beyond the construction industry: an estimated $400 million in taxes will go uncollected from employers who dodge payroll, unemployment insurance and workers’ compensation taxes. Over 10 percent of the state’s total private-sector workforce is misclassified, according to the Cornell study, which found misclassification to be most prevalent in the construction industry.
Many lawmakers see recovering the funds as a big step towards restoring the health of the state’s heavily indebted unemployment insurance trust fund and its nearly-broke workers’ compensation fund.
Getting the resources to catch tax cheats, however, has proven difficult so far.
Last year, a team of 40 investigators at the New York State Workers’ Compensation Board uncovered $32 million in unpaid taxes from employers that had erroneously listed their workers as independent contractors—or about $800,000 per investigator.
That was only the beginning, said Robert Beloten, chairman of the state Workers’ Compensation Board.
“I think it’s just a drop in the bucket, what’s been uncovered,” Beloten said, pointing out that the 40 investigators are responsible for all of the state’s 62 counties.
In 2007, then-Gov. Eliot Spitzer set up a task force to coordinate and share information between the agencies that enforce the law—the Workers’ Compensation Board, the Department of Tax and Finance and the Department of Labor. There has been a marked increase in the number of labor violations reported to the state since, but task force leader Jennifer Brand said she only has the manpower to make examples of the worst offenders.
With the budget crunch limiting enforcement capabilities, state agencies have been getting creative in trying to enforce the existing laws. One Department of Labor pilot program, New York Wage Watch, has sought to co-opt labor organizers and activists to do outreach to onsite workers, and to report any violations to the agency.
Paterson’s budget has brought further concerns, with 10 percent cuts to the overall budgets of the three agencies that work together to crack down on the scofflaws.
“In a budget crunch, we should cut the things that don’t work,” said Assembly Member Rory Lancman, who serves on the Labor Committee. “But when you’re getting $32 million from 40 investigators, that’s the kind of investment that Goldman Sachs would buy shares in.”
--
ABOVE: Susan John and George Onorato have introduced legislation that would fine employers who misclassify construction workers.
