The Louisiana Workforce Commission expects 2015 will yield a second consecutive record number of workers that employers have misclassified as independent contractors.
As of Nov. 12, audits of 865 companies have identified nearly 9,400 people who should have been considered employees, not independent contractors, according to the state agency. By the end of the year, LWC expects that number will exceed 2014’s record of 12,782 misclassified employees.
LWC Executive Director Curt Eysink said the agency identified about $83 million in under-reported wages so far this year resulting from the misclassifications and collected more than $923,000 in unemployment insurance taxes that employers owed.
“We’ve ramped up our efforts in recent years, thanks to new laws such as Louisiana’s Fair Play Act of 2012 and cooperation with state and federal agencies that are sharing data on companies,” Eysink said. “We want to provide a level playing field for companies that are following the law and are providing the benefits they are required to offer their employees.”
The U.S. Department of Labor says misclassifying employees as independent contractors is one of the most serious problems for “affected workers, employers and the entire economy.”
The practice can lead companies to avoid paying unemployment taxes, worker’s compensation premiums and employers’ portion of Social Security and Medicare taxes. Companies that misclassify workers improperly lower labor costs and can gain an unfair advantage over competitors who classify workers properly.
In 2014, Louisiana found 11 misclassified workers per audit, a rate that led the nation. The federal government required unemployment insurance audits be done randomly until 2010.
LWC said it doesn’t have enough staff to audit all of the state’s 100,000-plus employers. Instead, the agency focuses on industries where misclassification is common, such as construction, hospitality and personal services. The agency also uses tips, complaints and information from partner agencies in deciding which firms to audit.
“While our auditing process has become more effective, we also investigate when workers file complaints or when we receive tips by phone or at our website, www.laworks.net,” Eysink said. “We want people to tell us when they think a company is acting inappropriately. We’ll investigate and bring the company into compliance if necessary,” he said.
Eysink said the agency also can offer guidance to employers, who may be confused about whether a worker is legally considered an employee or an independent contractor.
Jennifer L. Anderson, a partner in Jones Walker’s Labor & Employment Practice Group, said the consequences for employers go beyond back-taxes, and can involve employee benefits and overtime, among other things.
The most important thing employers can do to avoid misclassification issues, she said, is to seek legal advice.
Employers who have already decided all their worker classifications and haven’t consulted a tax or employment attorney — even if there’s never been a complaint or a problem — should do so, Anderson said. It won’t take long for a lawyer to look and tell the employer if everything is OK.
Employers thinking about bringing on a new worker or creating a position should ask a lawyer ahead of time about classifying the position, Anderson said. If an employer discovers he or she has misclassified a worker, it’s a good idea to consult an attorney about options because it’s not always a simple fix.
Follow Ted Griggs on Twitter, @tedgriggsbr.