Concerned about Payroll Fraud and Worker Misclassification? The new Task Force is.

States continue to act aggressively on matters of worker misclassification. On April 15, 2019, Wisconsin became the latest state to create a task force to crack down on and collect from businesses who commit worker misclassification. (See full press release and Executive Order).

Called the “Joint Enforcement Task Force on Payroll Fraud and Worker Misclassification,” the Task Force will pull together many statewide interests under the common mission of stamping out the illegal practice of companies paying workers on a 1099 basis (thereby saving on benefits and withholdings) while treating them like W-2 employees.

Some of the agencies that will be coordinating efforts include Wisconsin’s Department of Workforce Development (DWD), office of the Attorney General and office of the Commissioner of Insurance.

The Task Force’s stated aims include the following: “facilitate coordination of investigation and enforcement of worker misclassification matters…[i]ncreas[e] public awareness of the illegal nature of and harms inflicted by worker misclassification…[and]…issue a report to the Governor…each year.”

While the creation of this Task Force looks to protect workers from exploitation as well as even the playing field for companies that incur the extra costs of classifying properly, this is also a numbers game. The Governor’s Executive Order announcing the Task Force cites some compelling statistics:

  • In 2009, the DWD found that 44% of the workers investigated during employer audits were misclassified as independent contractors
  • Over a three-year period from 2016 to 2019, the DWD conducted nearly 2,000 investigations, with 422 resulting in audits. Of those audits, nearly 6,000 workers were found to be misclassified, with almost $70 million found in under-reported wages. The state assessed nearly $2 million in unemployment insurance taxes, interest, and penalties on the companies involved.

As governments try to find ways to close tax gaps and drive revenues, committing precious funds to the rooting out and penalizing of worker misclassification becomes a prudent fiscal investment for local and state government.

Also, besides representing significant penalties to companies misclassifying workers, these numbers indicate that investigations into worker misclassification were widespread even before the establishment of the task force. For example, Wisconsin’s DWD website has a section for reporting suspected worker misclassification. Therefore, with all the agencies now acting in coordination under the authority of the Governor, enforcement should be expected to increase.

Across all industries, the message businesses should hear loud and clear, is to be more vigilant than ever in taking steps such as fortifying classification regimes, identifying and tracking contingent workers, and documenting actions taken to ensure Independent Contractor (IC) classifications are based on solid reasoning and a careful understanding of the laws.

If you’re looking for guidance, Wisconsin’s Department of Workforce Management website offers ample resources on worker classification. However, interpreting that information for your IC engagement is a complex task.   Partnering with an expert in worker qualification and classification reduces the risks associated with engaging independent workers and ensures you’re taking the correct steps to safeguard the protection of your brand, culture and worker satisfaction