Total Netted from State’s Misclassification Fight Exceeds $1.1 million

State officials’ efforts to crack down on companies that misclassify direct employees as independent contractors has generated more than $1 million for the state’s unemployment-benefits system over the past few years.

The state began stepping up its enforcement of misclassification laws several years ago. Since then, those efforts have recovered nearly $1.13 million worth of in unpaid unemployment-insurance taxes, penalties and interest, according to a report on the state’s unemployment fund released by the Wisconsin Department of Workforce Development on Wednesday.

Worker misclassification is believed to be particularly rampant in the construction industry, where frequent seasonal layoffs can blur the line between a permanent employee and someone hired for a particular job. Industry officials say deliberate misclassification not only deprives the state of unemployment taxes and other resources; it also gives dishonest companies an advantage by enabling them to avoid the sort of costs that their more scrupulous rivals often end up rolling into bid prices.

The state reported Wednesday that auditors found 8,613 misclassified workers at Wisconsin companies last year. The same year saw tipsters use a state-run website to report 59 instances of suspected misclassification.

Those tips led to 44 separate investigations, according to the DWD. On average, every audit conducted by the DWD discovers 10 workers who have been misclassified and recovers $3,605 in unpaid unemployment taxes, according to the Wednesday’s report.

Last year saw state legislators pass a law increasing the penalties for companies that misclassify workers. Violators can now be forced to pay $500 for every employee who was misclassified, although no more than $7,500 for a single incident of misclassification.

Employers who end up having to pay those administrative penalties and nonetheless go on to misclassify workers again are then subject to criminal fines. They can be made to pay $1,000 for every employee who is found to be misclassified, not to exceed a total of $25,000.