Misclassification: a fraud that hurts us all

Misclassification of employees as independent contractors is a violation of New Hampshire law, and it fundamentally undermines New Hampshire’s strong business climate.By driving higher unemployment and workers’ compensation costs for the overwhelming majority of businesses that follow the law, misclassification creates a competitive disadvantage for those law-abiding businesses. More importantly, it leaves employees without important benefits, such as workers’ compensation, which they are entitled to receive under the law. Plain and simple, the misclassification of employees is fraud, and it is illegal. Those who misclassify workers do not pay their share of unemployment taxes, which means businesses that follow the law and the taxpayers are subsidizing those who are perpetrating this fraud.By reducing instances of misclassification, we will help to level the playing field for businesses that play by the rules.Misclassification deals primarily with hiring practices used by some employers to avoid obligations they have under the law. These obligations include providing workers’ compensation coverage, unemployment coverage and other taxes, withholdings and benefits for their workers.There are workers in New Hampshire who truly operate as independent contractors. But there are also workers who simply call themselves an independent contractor in order to gain an unfair competitive advantage. Workers’ compensation coverage can be a costly part of doing business, especially in some industries and for certain occupations. It has been estimated that misclassification decreases payroll costs by as much as 30 percent for those companies that are violating the law. If an individual or business bidding on a job doesn’t pay for workers’ compensation insurance due to misclassification, this reduces their cost of doing business and may allow them to artificially undercut the price of their competitors who are acting lawfully. Then there are employers who seek to avoid their obligation to provide workers’ compensation by requiring workers to classify themselves as independent contractors, even though they do not qualify as such under the law.In these cases, the employer will pay the worker, but the employer does not provide benefits to the worker, including mandated workers’ compensation coverage. When this happens it leaves the worker unprotected. Companies that are found to have not provided proper workers’ compensation coverage for their employees may be assessed a civil penalty of up to $2,500 along with being assessed a civil penalty of $100 per employee for each day of noncompliance. These employers may also face criminal prosecution. Legislation in 2008 established the Task Force to Study Employee Misclassification, which has been looking at better defining, understanding and investigating the issues of misclassification and making recommendations as to how to deal with them. As a natural outgrowth of the task force’s work, Gov. John Lynch recently issued an executive order creating the Joint Task Force on Employee Misclassification Enforcement. The task force will ensure communication and cooperation among the agencies that investigate instances of misclassification, including the departments of Labor, Insurance, Employment Security and Revenue Administration. This coordinated effort will help us to better enforce the law and expose those who unlawfully classify workers as independent contractors.In addition, the state has put up a Web site – nh.gov/nhworkers – where anyone can report suspected misclassification or other workers’ compensation-related issues in a secure environment. The majority of companies in our state work to provide a fair, safe working environment for their employees, which helps to strengthen our economy. But there are those who knowingly break the law in order to gain an unfair competitive edge. By working with the business community and our various state partners to address the issue, we are demonstrating our commitment to ensuring that New Hampshire remains a great place to start and grow a business – where both employers and employees are treated with fairness and respect.George N. Copadis is commissioner of the state Department of Labor. Deborah L. Stone is chair of the Task Force to Study Employee Misclassification.