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IRS to crack down on NY workers’ compensation employer fraud

Posted on Feb 16, 2010

During these tough economic times some employers are trying to save money by reclassifying workers as independent contractors rather than full-time employees. How does this save money? Independent contractors can be left without any benefits or help after a work-related injury.

The practice of classifying workers as independent contractors has become more popular of late, as companies finding themselves in dire financial straits are seeking ways to save money. Classifying workers as contractors can save up to 30 percent of a company’s payroll, as the business does not have to pay for workers’ compensation benefits, among other things.

The Internal Revenue Service (IRS) and a number of states, including New York, are fighting for workers’ rights by cracking down on this practice. Of concern is the fact that an injured independent contractor is not covered by their employer’s workers’ compensation insurance, so they are often left to fend for themselves after an on-the-job accident.

Across the country, according to the GAO worker misclassification cost the federal government $2.72 billion in a single year because of lost payments towards Social Security, unemployment and lost income tax. In New York, from September 2007 to the end of 2009 $390 million worth of wages went unreported due to employee misclassification.

Not only that, but the problem seems to be getting worse. In the sixteen month period leading up to December 2008 there were 12,300 cases of employee misclassification; in the twelve months following there were a whopping 19,200 more. Times are tough, sure, but that is no excuse to defraud the working men and women of New York.