Missouri Labor Department Finds Fewer Misclassified Workers

Jack Humphrey, Regulatory journalist
September 02, 2010 /

A state audit reported on Tuesday that Missouri has been one of the last states to identify employers that misclassify their workers as contractors instead of employees. Employers that do so avoid paying taxes, and avoid making unemployment and workers’ compensation payments. Such worker misclassification has been found to be intentional in some cases, and accidental in others. Workers incorrectly classified as contractors oftentimes pay higher taxes and are ineligible for certain health and other benefits.

Periodic state reviews of employers were conducted between 2005 and 2009. On average, the Missouri Department of Labor and Industrial Relations found only 0.14 misclassified workers per check, compared to the national average of 1.36. Iowa was the only other state with comparably low numbers.

To counter this, State labor officials indicated that for the past two years they have been working on improving these figures by expanding staff, changing procedures, etc. According to Larry Rebman, labor department director, the result was an increase in the count of wrongly classified workers from 180 in 2008 to more than 2,300 to date.  Collections since 2008 also doubled.

Based on reviews, worker misclassification costs both the state and federal governments billions of dollars annually.

State labor officials estimate the following losses in contributions for each year: state unemployment fund $10 million, workers’ compensation fund $215,000 and Second Injury Fund $646,000. Besides which, $423 million in wages have been underreported for tax purposes.

The loss to the federal government is estimated at approximately $1.6 billion annually.


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