State Finds Millions in Unreported Wages and Underpayments to Workers Due to Illegal Labor Practices

Press Release

Date: Feb. 11, 2008
Issues: Labor Unions


The Department of Labor today announced the initial findings of the Joint Enforcement Task Force on Worker Misclassification. In its first four months, the Task Force discovered that more than 2,000 workers had been misclassified: a situation where employers improperly treat their workers as independent contractors rather than as employees, costing the state millions of dollars. Worker misclassification translates into a substantial revenue loss at all levels of government for vital programs and services, which leaves taxpayers the burden of making up the difference.

Governor Eliot Spitzer created the Joint Enforcement Task Force in September 2007 to address the problem of employers paying their workers off the books. Such employers hope to avoid taxes and other legal obligations such as workers' compensation coverage and overtime pay. This misclassification resulted in more than $19 million in unreported wages, $3 million in underpayments owed to workers, and more than $1.2 million in taxes and penalties owed to the Unemployment Insurance Trust Fund. The Governor's order directed the Task Force to report on its findings each February and make recommendations for ways to address the problems it encountered. Commissioner M. Patricia Smith announced the Task Force's first report in New York City today, where she was joined by members of the Task Force and labor representatives.

"I created this Task Force as a part of my economic security agenda to reduce long-standing abuses of workers and to level the playing field for law-abiding businesses," said Governor Spitzer. "This report demonstrates why employee misclassification is a serious problem and why a coordinated approach is needed. I commend Commissioner Smith and the Task Force members for their hard work on behalf of New York workers."

State Department of Labor Commissioner M. Patricia Smith said: "These striking results, in only four months, reveal the extent of a problem that has been ignored for many years. Employers who misclassify their workers are violating the state's laws and cheating their workers out of required pay, benefits and protections."

Through December 2007, the Task Force conducted 15 joint enforcement sweeps primarily targeting construction and restaurant worksites, finding more than $19 million in unreported wages. Employers did not pay required federal, state, or local taxes on these wages, nor did they report such wages for unemployment or Social Security purposes. In addition, the Task Force found 646 workers who were owed minimum and overtime wages totaling approximately $3 million.

The Task Force also assessed more than $1.2 million in taxes and penalties owed to the Unemployment Insurance fund, which provides a critical safety net for workers who lose their jobs through no fault of their own. Asbestos, recordkeeping, and child labor violations were also uncovered.

The report makes proposals for improving enforcement in this area, including the establishment of a single statewide standard for determining whether an individual is an employee or independent contractor, and legislative changes that would facilitate greater sharing of data between the agencies.