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<br />Wage Theft is a Crime Against the Taxpayer
<br />Worker misclassification leads to shortfalls in government revenue. Employers withhold state and federal
<br />income taxes and make contributions to Social Security, Medicare, and state unemployment insurance
<br />and workers' compensation systems on behalf of all workers on their payrolls. By misclassifying employees
<br />as "independent contractors," fraudulent contractors leave workers fully responsible for reporting their
<br />incomes, paying taxes, and paying the full amount due to public programs like Social Security and
<br />Medicare.
<br />Research indicates that misclassified workers would earn higher wages if they were correctly considered
<br />employees. That additional income would be subject to state taxes. Furthermore, if they were not illegally
<br />paid in cash, the earnings of "off -the -books" construction workers would be fully reported and would be
<br />taxed. The result is that the federal government loses up to $1.3 billion in income tax revenues and up to
<br />$4.3 billion in Social Security and Medicare revenues due to misclassification and payroll fraud in
<br />construction (Ormiston, Belman, & Erlich, 2020). States lose $1.7 billion in workers' compensation
<br />payments, over $700 million in unemployment insurance contributions, and $552 million in income tax
<br />revenues due to misclassification and payroll fraud in construction (Ormiston, Belman, & Erlich, 2020).
<br />Another national study estimates that revenue for Social Security, Medicare, workers' compensation, and
<br />federal and state unemployment insurance decreases by as much as $3,000 (or 32%) per construction
<br />worker who is misclassified as an independent contractor (Schmitt et al., 2023).
<br />Numerous state -level studies confirm budget shortfalls caused by construction worker misclassification.
<br />In California, the unemployment insurance system is cheated of $63 million and workers' compensation
<br />system loses another $264 million every year due to misclassification and payroll fraud in construction
<br />(Liu, Flaming, & Burns, 2014). In the construction industries of Illinois, Wisconsin, and Minnesota, more
<br />than $360 million is lost each year in income taxes, unemployment insurance contributions, and workers'
<br />comp premiums (Goodell & Manzo, 2021). Studies in Missouri, Rhode Island, Nevada, Massachusetts,
<br />New York, Tennessee, and Michigan have found similar impacts (I<elsay, 2023; Ormiston &Juravich, 2022;
<br />Waddoups, Duncan, & Ormiston, 2021; Juravich, Ormiston, & Belman, 2021; Ormiston, Erlich, & Belman,
<br />2021; Canak & Adams, 2010; Belman & Block, 2009).
<br />Because misclassification reduces worker earnings and causes wage theft, fraudulent contractors create
<br />burdens on public services funded by taxpayers. Workers who have been misclassified are less likely to
<br />have private health insurance coverage —due to the drop in employer -sponsored health insurance
<br />coverage —and are more likely to rely on Medicaid (Greenstein, 2018). Underfunding of workers'
<br />compensation systems can shift the financial burden of treatment to public safety nets and local hospitals,
<br />with 20% of injured construction workers not being compensated for their injury in any way by their
<br />employers ( ). In California, a recent study found that 48% of all families where
<br />at least one adult works in construction are enrolled in means -tested government assistance programs
<br />like Medicaid, the Earned Income Tax Credit (EITC), or Supplemental Nutrition Assistance Program (SNAP)
<br />food stamps. The cost to state public services is estimated at $3 billion per year (Jacobs & Huang, 2021).
<br />All workers and law-abiding businesses are forced to pay more in taxes, unemployment insurance
<br />contributions, and workers' compensation premiums to cover the deficit caused by payroll fraud in
<br />construction. Because contractors with wage and safety violations produce lower -quality public works
<br />projects, taxpayers are also forced to pay more to maintain, repair, or replace infrastructure built by
<br />unscrupulous contractors who commit misclassification (Sonn & Gebreselassie, 2009). As a result, wage
<br />theft is a crime against taxpayers.
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