Director's Spotlight - January 2011
Worker Misclassification is
Bad for Business
A column by Department Director
Larry Rebman
Under Missouri law, an employer is generally required to pay unemployment taxes, payroll taxes, and provide workers’ compensation for its employees. While a majority of Missouri employers comply with these requirements, others undermine the system and place an additional burden on those that properly classify workers.
Employers that misclassify workers as independent contractors cut costs by not paying unemployment taxes, workers’ compensation insurance, and social security withholdings. These workers are off the books and unable to access other employee benefits such as health insurance, pension plans, vacation pay, or sick pay. More importantly, misclassified workers are denied the protection of the safety nets put in place by state law, such as unemployment and workers’ compensation in the event that they lose their job due to no fault of their own or incur a workplace injury.
If an employer classifies an employee as an independent contractor and does not have a reasonable basis for doing so, the employer may be held liable for employment taxes for that worker. Employers that knowingly misclassify their workers face penalties in the amount of $50 to $1,000 per day per misclassified worker, and/or up to six months in jail per violation. Another state statute allows the Division of Employment Security (DES) to penalize an employer 25 percent of the amount the state has been defrauded. To determine whether an independent contractor is misclassified, Missouri uses a test of 20 factors to identify the correct legal status of a worker.
In 2009, the Missouri Department of Labor made identifying misclassification a priority. Since 2010, the first full year of the implementation of Misclassified Worker Detection System (MWDS), the investigations conducted by the Department’s DES have found that employers misclassified more than 5,000 employees as independent contractors or something other than employees. The DES identification of misclassified workers has increased by nearly 2,700 percent between 2008 and 2010. In 2010, this allowed the Department to collect additional taxes from 744 employers that were attempting to evade payment by misclassifying workers. In 2009, the DES projected that employers owed an additional $135,000 in taxes because of misclassified workers. The DES efforts in 2010 allowed the agency to identify projected delinquent taxes of $819,000, which is more than six times the 2009 amount. The Department will continue to work towards identifying employers cheating the system, and leveling the playing field for all employers conducting business in Missouri.
For assistance with questions about the proper classification of workers, or if you suspect a business is misclassifying employees, please contact the DES at 573-751-1099, or via e-mail at: esemptax@labor.mo.gov. Anyone can report fraud online by visiting this webpage.
Director's Spotlight Archives
November 2011 - Native American Heritage Month
October 2011 - National Disability Employment Awareness
September 2011 - Labor Day: A Tribute to Missouri's Leadership in Worker Protection
April 2011 - How Housing Fraud Can Crush the American Dream
January 2011 - Worker Misclassification is Bad for Business
December 2010 - Working for the Holidays
November 2010 - Unemployment Benefits: Transitioning to Jobs
October 2010 - Protecting a Precious Industry
September 2010 - Labor Day: A Tribute to Missouri Workers
August 2010 - WorkReadyMissouri: Enhancing Missouri's Workforce
July 2010 - Workers' Compensation: Stepping Up Efforts against those Cheating the System
June 2010 - Preparing Missouri for the Evolving Economy
May 2010 - Workers' Memorial Day 2010
April 2010 - Missouri's Unemployment Update
