Ayers, Whitlow & Dressler

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Misclassification of workers robs North Carolina taxpayers

When the economy is down and unemployment is up, many people are just glad to have work, whether as an employee or an independent contractor. Having an income is the goal, right? True, but when an employer misclassifies a worker as an independent contractor, the repercussions can have negative consequences in many ways other than cheating the worker out of benefits he or she should have.

In the current session of the North Carolina legislature, lawmakers are taking a close look at these practices and their consequences. The Senate has passed its version of a House bill that addresses these illegal practices. According to a recent newspaper investigation, not only do the workers lose protections and securities that employees have such as unemployment pay and workers’ compensation coverage, but the misclassification also hurts employers who follow the law and costs the government, and thus taxpayers, billions of dollars in unpaid taxes each year.

Misclassification is perhaps used the most in the construction industry where employers hire day laborers and other non-permanent workers to save money. Newspaper reports estimate that $467 million is lost each year in state and federal tax revenue, just in North Carolina, not to mention the danger to a construction worker who sustains injuries on the worksite.

One of the cases reported in the newspaper investigation involved a construction company that has been under the state and federal radar for violations for over a decade. As early as 2002, workers complained to labor regulators that they weren’t being paid for their work. It was even suggested that the company should be banned from applying for federally-funded work due to its pattern of illegal practices. This scenario in which regulators fail to enforce the laws is one concern of state legislators: they question whether North Carolina has the resources to enforce the law if it is passed without spending more money to hire more staff.

Whether the law passes, or whether the Department of Revenue has the resources to enforce the law, any worker who has been injured on the job and been denied workers’ compensation benefits on the basis of misclassification as an independent contractor should take legal action to enforce his or her rights. An attorney in North Carolina who is aware of the pitfalls of this scheme can assist in overcoming the employer’s objections.

Source: News & Observer, “State Senate Oks bill to clamp down on cheating on tax and labor laws,” Craig Jarvis, Sept. 17, 2015

Secondary Source: The Charlotte Observer, “Contract to Cheat: Raleigh contractor left dozens of workers unpaid,” Mandy Locke and Franco Ordonez-McClatchy, Oct. 4, 2014

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