In the state of Maine, the Governor's Task Force on Employee Misclassification created in January 2009 has had a productive year, concluding that the state is losing tax revenue as the result of workers being misclassified as independent contractors.
Like many states now, Maine has a hotline and website tip form for reporting suspected worker misclassification. According to the task force's report, the form has generated 27 tips on improper worker classification. "Maine is losing substantial income tax revenue,” the report states. “Reducing misclassification through outreach and better enforcement of the law will help level the playing field for honest employers in the competitive marketplace.”
Interestingly, the states are now collaborating with one another to share best practices and connect the dots to indentify multi-state employers suspected of employee misclassification. Representatives from Maine, Laura Fortman and two other Task Force members, attended the first-ever Northeast Regional Summit of State Misclassification Task Forces which includes Maine, Massachusetts, New York, New Hampshire, Vermont, Connecticut, Rhode Island, New Jersey, and Maryland.
The report defines misclassification as an employer’s designation of a worker as an independent contractor instead of an employee, or in other words, paying them as a 1099 versus W-2. For the state government, improper worker classification results in significant financial effects, and analysts have concluded tax losses to Maine could be as much as $36 million a year.
As reported in the Bangor Daily News, the Governor's reaction was moderate: “This issue has been around for years,” Gov. John Baldacci said when he received the report last week. “I want to see if I can cobble together some additional resources to address this.”
For contract workforce program managers, the new trends in state enforcement and 1099 compliance merely underscore a larger, national trend. State treasuries, stretched by unprecedented unemployment claims and growing deficits, are strapped for cash and looking for lost tax revenue. The Federal government is in a similar position, and the IRS just launched audits of 6000 companies specifically looking for misclassification. Program managers, especially at large employers, can expect the emergence of a new independent contractor compliance climate that will require great diligence and new contract talent engagement approaches.
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