Zurik: Labor misclassification rampant, lawmakers weigh stiffer penalties
BATON ROUGE, LA (WVUE) - The picture for Louisiana is clear: The state has lost out on tens of millions of dollars of unpaid taxes because some business owners have skirted the law.
Misclassification of employees is practically a business model for those owners. According to our research, it costs Louisiana taxpayers at least $250 million annually.
Consider a public school, built by a contractor. The contractor hires subcontractors to build that school. The subcontractors hire carpenters, laborers and painters. Our investigation found many of these subcontractors are labeling those workers as independent contractors instead of employees, meaning they don't pay state or federal taxes, Medicare, Social Security or unemployment taxes.
"Payroll fraud misclassification is pretty much the business plan on every job site in the state of Louisiana," says Jason Engels of the state's carpenter union.
Critics of the practice warn that the laws currently on the books are weak: A $250 or $500 fine, for instance, does little to dissuade employers who are might be saving hundreds of thousands of dollars through labor misclassification.
State Representative Patricia Smith of Baton Rouge is trying to toughen the law - again. Her 2008 bill to increase penalties failed to pass. A Senate committee killed it, apparently after Senator Jack Donahue of Mandeville got involved. Donahue owns a construction company.
"I think Jack Donahue had a lot of influence over that bill getting killed," Engels told us in an interview last year.
Right now, a first offense gets a business owner a warning letter. The second time, he can get fined, and by the fourth time he can be criminally prosecuted.
"We're increasing the penalties for this," Rep. Smith tells us. "And I believe that we may have a better chance of getting it through."
Smith's new bill gets rid of the warning letter and allows a fine of up to $5,000 for a first offense. A second offense could lead to a $10,000 fine, a third offense $25,000, and the fourth $50,000.
"Now we're saying, if the tiers do it, everybody has to pay a price," Smith says, "because somewhere down the line somebody knows about it."
The bill passed a House committee last week, and the full House is expected to vote on it soon. Supporters of the bill say they expect a compromise in the end - and the fines will likely be reduced slightly.
The Louisiana Workforce Commission investigates many of these misclassification allegations.
"We believe very strongly that this is an issue that affects all employers, and that everyone should be on an even playing field," says Ava Dejoie, who became LWC's executive director earlier this year.
That agency has recently stepped up investigative efforts. From January to November 12, 2015, they found almost 9,400 misclassified workers. After we aired our "Billion Dollar Blueprint" reports, the numbers shot up. The last month and a half of 2015, infractions increased to 19,956.
But just 10 percent of those were construction workers.
"When you don't follow law, you hurt other contractors that are out there, doing the right thing," Smith says. "And that's not what we should have going on in our state."
It's a blueprint for businesses to save millions of dollars, while workers and taxpayers lose. But during this session, the laws finally could be toughened. Supporters say that could make businesses think twice before they decide to break the law - and decide not to pay their fair share to the state and to their employees.
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