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Worker misclassification, or payroll fraud, occurs when an employer labels a worker an “independent contractor” rather than an employee. It cheats employees out of workplace rights, including overtime pay, labor rights and minimum wage, while costing the state and federal government billions in unpaid Social Security and Medicare taxes.
“Misclassification undermines collection of unemployment insurance, workers’ compensation and transit taxes. In addition, the state loses income tax revenue — nearly all of which goes to fund schools, public safety and programs that protect the vulnerable,” according to the fact sheet by the Oregon Center for Public Policy.
A recent audit by the state legislature revealed more than 1,000 illegally classified workers across Oregon. Nationwide it is estimated that the share of employers engaged in payroll fraud is between 13 and 24 percent.
Worker misclassification hurts honest employers as well by putting them at a competitive disadvantage, reports the center.
More than 20 states have introduced legislation to crack down on abusers, including Oregon, where Gov. John Kitzhaber signed a bill last spring that gives the state the right to the suspend or deny the business license of any construction contractor found guilty of misclassification.
Click here to read the factsheet.
