A bill attempting to address North Carolina’s crisis of employers misclassifying employees as independent contractors passed through the Senate on Tuesday. Senate Bill 694 creates an “Employee Classification Division” within the Office of State Budget and Management which is tasked solely with the responsibility to oversee and enforce proper classification of employees. The tasks of the Division mostly involve investigating, preparing reports and developing strategies. While the Division also has authority to assess civil penalties, it is limited to assessing a penalty for misclassifying employees over the past three years (and in the future) of up to $1,000 per misclassified employee. This is not $1,000 for each year an employee was misclassified, but $1,000 per employee. There is also an amnesty program whereby any employer can come forth by April 1, 2016 and admit to fraud and face no penalty for past wrongdoings. Other possible sanctions for future wrongdoings include revoking a general contractor’s license, but if five or more members of the Board vote to reinstate, it can reissue any license at any time.
Even though $467 million may have been lost each year in state and federal taxes due to employer misclassification, employers will get a clean slate for coming forward by next year. Because misclassifying employees allows employers to cut down their costs by an estimated 20%, cheating employers are able to win contracts with lower costs than their honest competitors. $1,000 per misclassified employee may be worth it to an employer who can stay above their competition and keep getting big contracts. This proposed legislation is a good first step, but it simply does not go far enough to stop the fraud.
Photo source: http://www.wncn.com/story/28936225/nc-senate-unanimously-agrees-to-take-on-employer-schemes