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Economy & Business

Legislation Would Go After Employers Who Misclassify Workers to Avoid Benefits

A state lawmaker says Pennsylvania regulators are coming up short when it comes to enforcing a 2010 state law intended to target companies that misclassify their workers as independent contractors.

State Senator Mike Stack (D-Philadelphia) said there is room in the economy for independent contractors, but, “there is obvious abuse of the classification which denies employees rights, benefits and protections accorded under labor laws.”

Under Act 72, independent contractors are supposed to use their own tools and equipment and should not be under the direct supervision of their employers.

The law outlines penalties for misclassifying workers, but Stack said the commonwealth is not adequately enforcing the law.  

“The Department of Labor and Industry has not taken action to prosecute or dismiss 18 of the original 29 complaints filed in 2011. Of the 63 complaints filed within the last three years, only 20 were closed,” Stack said.

The lawmaker is bypassing state regulators and introducing legislation (Senate Bill 1454) that would assist local district attorneys in enforcing Act 72 where they suspect local violations. Under the bill, the state would reimburse district attorneys for the cost of their investigations.

“It is time to acknowledge that, for whatever reason – lack of expertise or political indifference – state regulators aren’t up to the job," Stack said.

He added that individual workers and their families are not the only ones interested in a fair employment policy.

“Every taxpayer loses when misclassification results in uncollected income taxes, workers compensation  payments and unpaid medical bills," Stack said.

According to Stack, the Internal Revenue Service and the U.S. Department of Labor are working with states to crack down on the mislabeling of employees as independent contractors.

“In cooperation with labor officials in a dozen other states, the federal government has recovered more than $18 million in wages for nearly 20,000 misclassified workers over the past two years," Stack said. "In Pennsylvania, the amount recovered has been less than $5,000.”

Stack says some employers are now facing federal criminal penalties for “cheating workers and the government through misclassification.”