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Study: Many Mass. workers misclassified
Errors
allow employers to cut costs on taxes, benefits |
Author(s):
Diane E. Lewis, Globe Staff
Source(s):
Boston Globe, C1 (Business Lead)
Date: December 13, 2004
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Thousands of Massachusetts workers are wrongly classified as self-employed or independent
contractors by employers seeking to lower costs, according to a report released jointly today
by the University of Massachusetts' and Harvard University's schools of Law and Public Health.
Misclassifications enable employers to avoid payroll taxes and such mandated employee benefits
as unemployment and workers' compensation insurance.
Using all of the unemployment insurance tax audits conducted by the state Division of
Unemployment Assistance from 2001 to 2003, researchers found that 36,531 Massachusetts
employers misclassified up to 248,000 workers, costing the state $152 million in uncollected
income tax revenue. Also, $35.1 million in unemployment insurance taxes were lost. The report,
to be released today at Harvard Law School, said there are 194,000 employers in the
Commonwealth.
The study revealed misclassification is prevalent in a variety of business sectors. For example,
17 percent of all audited employers in transportation and utilities misclassified workers. In
addition, 16.1 percent of the firms in education and health services, 14.3 percent of those in
information services, 13.5 percent of the employers in professional and business services, and
11.4 percent of those in construction misclassified workers.
"Employers who do this do not have to carry any responsibility for the worker," said Elaine
Bernard, a principal investigator for the study and executive director of the Labor and Worklife
Program at Harvard Law School. "If they list workers as employees, they must share in the payment
of Social Security taxes, healthcare, pensions, unemployment insurance, and other benefits. If
they misclassify workers, they do not have to pay these hidden costs of employment."
Francoise Carre, a professor at the McCormack Graduate School of Policy Studies at UMass-Boston,
said the economic downtown and rising medical and workers' compensation insurance premiums have
played a critical role in fueling the trend.
"In an environment of recession there is greater pressure on workers to accept this kind of
employment arrangement," said Carre. "But it makes them vulnerable because they do not have any of
the protections of an employee."
Misclassification can take many forms. Some workers receive cash only and, because the work is
undocumented, do not file the 1099 tax forms required of independent contractors by the Internal
Revenue Service. Others unknowingly sign waivers absolving employers from the obligation to pay
jobless benefits or workers' compensation insurance. Others must sign or risk losing a job.
Gordon B. McLoughlin, 37, of Brockton, worked on a construction site in Burlington from August
to early fall, and was classified as a subcontractor even though he was given assignments each
day and did not control the conditions of his employment. McLoughlin, who was placed at the site
by the carpenter's union to investigate charges of misclassification, said a supervisor told him
to sign papers stating that he was independent. He earned $24.19 per hour, $10 to $15 less than
union carpenters who were classified as employees.
"A lot of companies will say that if you don't agree to do this, you don't go to work," said
McLoughlin. "I wasn't entitled to workmens' comp, or unemployment, and there was no health, no
dental. Nothing. It was all on my own dime."
According to the study, 48 percent of the 19,000 or so Massachusetts workers in construction are
misclassified as independent.
Mark Erlich, a business representative for Carpenters Local 40 who has lobbied for stiff
regulations, wasn't surprised. "This verifies what we have long known," he said. "Nationwide,
millions of people are misclassified, especially at construction sites."
Rhina Alvarenga, 30, of Somerville, didn't know that she had been misclassified, said her
lawyer, W. Lee H. Dunham, a partner at Sullivan & Worcester in Boston. Dunham said his client
was placed at an Arlington nursing home in June 2003 by Coverall North America Inc., a
commercial cleaning agency in Fort Lauderdale, Fla.
"They classified her as an independent contractor like a plumber or painter who comes to your
house rather than an employee -- even though they had trained and supervised her," said Dunham.
"She speaks some English, but they made her sign an agreement that I couldn't understand after
practicing law for 25 years."
Alvarenga said in a telephone interview that she didn't know something was amiss until she quit
in October 2003, and the company refused to pay jobless benefits. She said she started receiving
the benefits after Dunham represented her at a state hearing.
Coverall denies that Alvarenga was misclassified. "She absolutely knew what she was signing,"
said Jacqueline Vlaming, vice president and general counsel for Coverall. "We have appealed and
the case is pending right now."
Diane E. Lewis can be reached at dlewis@globe.com.
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