Payroll fraud costing workers, government – National Consumers League

March 13, 2013

Contact: Carol McKay, NCL Communications (724) 799-5392, carolm@nclnet.org

Washington, DC–When an employer misclassifies an employee as an independent contractor, everyone suffers, from workers to taxpayers. By skirting their responsibility to pay taxes, employers pass a heavy tax burden onto workers. Additionally, workers lose crucial employment protections such as minimum wage, paid overtime, workers compensation, and unemployment insurance.

Today, the National Consumers League hosted a Senate briefing on Capitol Hill, featuring a panel of worker advocates, state agency staff, and industry experts to unveil new survey findings about consumers’ awareness of payroll fraud. The survey, conducted by ORC International and commissioned by the National Consumers League, found that most consumers are unaware of the existence of employee misclassification, but are near-unanimously opposed to the negative consequences misclassification creates for workers and tax payers.

“Honest businesses, employees, communities, states, and the federal government are all affected by payroll fraud, which is on the rise in states all across the country,” said Sally Greenberg, Executive Director of the National Consumers League (NCL), America’s pioneering consumer and worker advocacy organization.

A 2009 report by the United States Government Accountability Office (GAO) estimated that payroll fraud decreased federal revenues by $2.72 billion in 2006. Certain industries including construction, real estate, home care, trucking, and janitorial services have disproportionally high rates of misclassification. These rates continue to rise according to numerous state studies. In California, for example, the number of unreported employees identified by the Economic Development Department increased by a third between 2006 and 2008. More recent studies are needed to understand the full effect of payroll fraud on federal revenues.

“Many consumers do not know how serious and widespread cases of misclassification are in the workplace. Once we educate people about this issue, however, nearly everyone agrees that employers are benefitting at the expense of hard working Americans. People lose valuable worker protections such as paid overtime and worker’s compensation, leaving them vulnerable and without any job security,” said Michell McIntyre, Project Director for NCL’s Special Project on Wage Theft.

Survey Highlights

Awareness of “employee misclassification” is low, described to respondents as “a form of payroll fraud in which an employer intentionally classifies workers as ‘independent contractors’ instead of ‘employees’ in order to deprive workers of their workplace protections and defraud state and federal treasuries out of income taxes”.

Two in three Americans (65%) have not heard of employee misclassification.

• Awareness of this term is substantially lower among females, 71% of whom have not heard of it versus 59% of males.
• Lack of awareness decreases with education:  72% of those with a high school education or less have never heard of the term, compared to 63% of respondents with some college education and 55% of college graduates.

Once familiarized with the concept of “employee misclassification,” respondents expressed strong views against it, including support for punishment of the companies that engage in this practice.

• Nine in ten consumers (90%) “strongly agree” or “agree” that it is important that companies do not misclassify workers as independent contractors in order to prevent workers from receiving minimum wage and paid overtime.
• Agreement is higher among women, with 93% agreeing with the statement versus 87% of men.

According to 93% of Americans who express agreement, companies that intentionally misclassify workers as independent contractors in order to dodge paying minimum wage, overtime, workers compensation and taxes should be fined or punished.

• Once again, females are more inclined to say they “strongly agree” or “agree” with fines or punishment (95% vs. 90% males).

Nearly all consumers (96%) are in agreement that workers should be clearly informed in writing that they have been classified as independent contractors at the beginning of employment.

• Agreement is universally high among all demographic subgroups.

See NCL’s full survey and results.

Methodology

These results are based on 1,024 telephone interviews among a random sample of US adults 18 years old and older. Interviews were conducted over the period December 13-16, 2012, utilizing both landline and cell telephones. Results among total sample have an error margin of +/- 3%. Interviewing was conducted on behalf of National Consumers League using ORC International’s CARAVAN® survey.

About the National Consumers League

The National Consumers League, founded in 1899, is America’s pioneer consumer organization. Our mission is to protect and promote social and economic justice for consumers and workers in the United States and abroad. For more information, visit www.nclnet.org.