Cracking Down on Misclassification of Workers-- And Raising Tax Revenue

Cracking Down on Misclassification of Workers-- And Raising Tax Revenue

Thursday, February 14th, 2008

Conference Call

 Conference Call: Progressive Strategies on Immigration

Please join us for a conference call on progressive strategies on immigration in the states TODAY, February 14th at 2pm EST. The call will include advocates and state legislators discussing both messaging and policy options to challenge anti-immigrant legislation. See PSN's State Immigration Project for more background policy discussion.


Speakers include:

State Senator Harry Coates (OK-R)
Rebecca Smith, Immigrant Worker Project Coordinator of the National Employment Law Project
Javier Morillo-Alicea, President of SEIU Local 26 in Minnesota
Nathan Newman, Policy Director of the Progressive States Network


BY Nathan Newman

Cracking Down on Misclassification of Workers-- And Raising Tax Revenue

In a dramatic sweep of 117 employers, a new New York State joint task force of state labor, tax and worker compensation agencies found that 2,078 employees had been illegally misclassified as independent contractors, with $19 million in wages not reported to the state.  An additional 646 workers were owed minimum wage and overtime pay totaling $3 million. 

The worker abuse and tax losses for the state revealed by this raid are only the tip of the iceberg.  Last year a Cornell University report estimated that 704,000 of the seven million private-sector workers in New York state were misclassified as independent contractors, allowing employers to avoid withholding state and federal income taxes, unemployment insurance taxes and workers compensation payments. 

By targeting the problem of misclassification, states not only stop the abuse of workers rights, but raise revenue for state coffers.  The raid in New York uncovered $1 million owed to the state in unemployment insurance payments alone, which is just a tiny fraction of the $175 million in unemployment insurance taxes not paid to the state due to unlawful misclassification of workers.  On top of the unemployment insurance payments, the state will be getting back income and other taxes owed, along with additional civil penalties added to state revenue.

This New York raid by its new Joint Enforcement Task Force to address the problem of employee misclassification is just one example of recent moves by states to address the problem of misclassification. 

  • California was the first state to create a "Joint Enforcement Strike Force" to focus on misclassification of workers as "independent contractors."
  • Colorado last year enacted HB 07-1366  a law requiring construction sites to make sure all workers, whether officially employees or "independent contractors," are covered by workers' comp insurance.
  • Minnesota enacted MN Statute 181.723, which requires any independent contractor in the construction industry be certified as a legitimate Independent Contractor by the state.
  • Connecticut enacted Pub. Act. No. 07-89, which provides that employers who misrepresent the number or type of their employees for purposes of the workers' compensation system, can be issued a stop work order and ordered to pay a fine of up to $1,000. 

Dramatically stepping up enforcement of labor rights, particularly cracking down on misclassification of workers, has the potential to not only improve workers lives but raise billions of dollars in new revenue for cash-strapped states.

More Resources


BY J. Mijin Cha

Illinois Commerce Commission Allows Controversial Decoupling Pilot Program

Decoupling increased utility profits from increased energy use is a key policy for promoting energy savings. Yet, some proposals, like the four-year decoupling pilot program just approved by the Illinois Commerce Commission (ICC), may just be masking abuses of consumers under the guise of energy conservation. 

The new Illinois program would allow the natural gas company Peoples Gass to charge customers a new, pre-set fee regardless of how much natural gas they use. In an editorial, Desiree Rogers, President of Peoples Gas, pointed out the benefits of decoupling, highlighting that the utility will collect only an amount that has been approved by the ICC regardless of how much natural gas is used.  Therefore, Peoples Gas has a strong incentive to encourage conservation of natural gas to decrease its fixed costs while still retaining a profit margin.

However, the decoupling plan adopted by the ICC is accompanied by a distribution rate increase of $71 million.  Further, the Illinois Attorney General opposes a key rider in the rate proposals that could impose surcharges on customers for the delivery of gas they did not use- giving the utility extra profits, especially when customers use less gas.  This distorts the original policy behind decoupling and hurts consumers, as the Citizens Utility Board Executive Director David Kolata said,"First they (consumers) get hit with a big rate hike. Then, if they try to save money through conservation, they will be penalized with higher usage charges." The watchdog group is appealing the decision.

Like a Duke Energy proposal that we previously highlighted, the recent ICC decision seems to be only for the benefit of the utility: set profit rates without any risk of return. However, decoupling was meant to encourage conservation while protecting consumers from large rate hikes. Oregon, for example, also decoupled their natural gas utility and the rate increase to customers was $0.00767 per therm. In Illinois, by contrast, rate payers will face an average increase of $7 per month just in usage charges and the utility's authorized return on equity was increased to over 10%. 

The Illinois example highlights what happens when utility interests dominate energy reform initiatives: new programs that punish consumers from all angles.

More Resources


BY Adam Thompson

A Consumer Guide to State Health Reform

Some health care reformers may recall that in 1994 the makers of Sim-City produced a Sim-Health computer program.  The program, labeled by some as the "dryest" simulation game ever made, allowed users to take control of the US health care system and observe the results of their decisions.   Now, taking a similar yet more user-friendly approach, Community Catalyst and Families USA have teamed up to provide health care advocates with a web-based guide for developing state expansions of health coverage. The navigable service walks you through the various steps and questions you need to ask when developing programs to expand access to health coverage, as well as quality improvement and cost containment initiatives. Topics include: expansion of public programs like Medicaid and the State Children's Health Insurance Program; regulation of private insurance; options for funding new programs; and, models for improving quality and reducing long-term health spending. To ensure anybody can take advantage of this service, the guide includes links to health care information from each state and an extensive glossary of health care terms.

More Resources


BY Adam Thompson

Insurer Tries to Recruit Doctors in Canceling Health Insurance Coverage

Blue Cross of California, one of the state's largest health insurance companies, is being investigated for sending letters to doctors asking them to identify any medical events that could be used to cancel a new health plan membership. As we wrote in November, Blue Cross and other California insurers have already been investigated for fraudulently rescinding coverage for minor discrepancies in health insurance applications after members file a medical claim for payment. In fact, Blue Cross was fined $1.2 million after the state determined it was illegally canceling coverage by mining applications for minor errors after they had already been approved.  Compounding the insidious nature of these events, insurerers, notably HealthNet, were found to provide employee bonuses based on how many policies were cancelled.

As the San Francisco Chronicle reports, the letters to doctors, which include copies of insurance applications, say, "Any condition not listed on the application that is discovered to be pre-existing should be reported to Blue Cross immediately." The state is looking into whether this practice violates any laws, including patient privacy protections.

Americans value a close patient-doctor relationship, where you can trust that your doctor is looking out for your best interests. For their part, doctors and medical groups are decidedly disgusted by the Blue Cross actions. A spokesman for one large medical group said, "To try and turn doctors into investigators and cause them to proactively seek information and try and result in post-application denials of coverage is a perversion of the patient-physician relationship."

More Resources

Research Roundup

In a new report, Cities and Immigration: Local Policies for Immigrant-Friendly Cities, the Center on Wisconsin Strategy has prepared a systematic guide for cities looking to design inclusive policies to incorporate immigrants fully into local economies and raise living standards for all residents, from prohibiting the collection of information on immigration status by local agencies to enacting living wage laws to supporting workers centers for day laborers to expanding health care for residents to providing legal advice to immigrants looking to become citizens.

The National Immigration Law Center, in collaboration with NELP and Hate Free Zone, has also released a new immigration resource, Facts about Driver's Licenses and Immigrants, that highlights why denying drivers licenses to undocumented immigrants undermines public safety and national security, and how procedures established to target those immigrants burden many legal residents as well.

Following the introduction of Colorado legislation to restrict interest rates for payday loans, the Bell Policy Center has a new report, The Truth About Payday Loans, that documents how high-interest loans trap working coloradoans in a cycle of debate, while enriching the profits for the $40 billion payday lending industry.

As states struggle with rising unemployment, the National Employment Law Project has released a report on how additional federal resources for unemployment benefits would not only help jobless families but effectively stimulate the overall economy.

While manufacturing has lost jobs in recent decades, it still supports 14 million US jobs -- 10% of the toal, as a brief by the Economic Policy Institute emphasizes.

Please email us leads on good research at


Cracking Down on Misclassification of Workers-- And Raising Tax Revenue

New York State Governor's Office - State Finds Millions in Unreported Wages and Underpayments to Workers Due to Illegal Labor Practices

Progressive States Network - Pervasive Violations of Wage Laws -- and What States Can Do About It

National Employment Law Project - Combating Independent Contractor Misclassification in the States

Cornell University Institute for Labor Relations - The Cost of Worker Misclassification in New York State (Feb. 2007)

Office of Minnesota Legislative Auditor - Misclassification of Employees as Independent Contractors

Recent State Law Cracking Down on Misclassification: CO HB 07-1366, MN Statute 181.723 and CT Pub. Act. No. 07-89

Illinois Commerce Commission Allows Controversial Decoupling Pilot Program

Progressive States Network - Utility Decoupling: Giving Utilities Incentives to Promote Energy Efficiency

Citizens Utility Board

Integrys Energy Group Reports Financial Implications of Illinois Rate Orders

Illinois Climate Change Advisory Group - Decoupling of Utility Rates and Profits

The Regulatory Assistance Project - Decoupling/Financial Incentives

NRDC - Breaking the Consumption Habit, Ratemaking for Efficient Resource Decisions

A Consumer Guide to State Health Reform

Community Catalyst - Consumer Guide to State Health Reform

Insurer Tries to Recruit Doctors in Canceling Health Insurance Coverage

Progressive States Network - Insurers Drop Coverage - One Person's Fraud is Another's Day Job

California Department of Managed Health Care - Significant Enforcement Actions on Health Plans

Consent Agreement - HealthNet and the Department of Managed Health Care


The Stateside Dispatch is written and edited by:

Nathan Newman, Policy Director
J. Mijin Cha, Policy Specialist
Julie Schwartz, Policy Specialist
Adam Thompson, Policy Specialist
John Bacino, Operations Manager

Please shoot us an email at if you have feedback, tips, suggestions, criticisms, or nominations for any of our sidebar features.

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