The writer, of Omaha, is secretary-treasurer of Teamsters Local 554. He is president of the Nebraska chapter of Change to Win, a national coalition of unions.
In the just-completed Nebraska legislative session, elected officials tightened the screws on wayward employer classification fraud and went after as much as $20 million in uncollected taxes owed to the State of Nebraska.
With the state’s economic shortfalls grabbing front-page headlines, finding a way to channel up to $20 million back into the state without layoffs, closings or higher taxes for Nebraskans is a significant stride in the effort to right the employee misclassification ship.
According to the Internal Revenue Service, employers are required to report the incomes of employees and independent contractors. Classifying a worker as an employee requires an employer to pay different taxes, whereas classifying a worker as an independent contractor means the employer pays little to no taxes.
And therein lies the crime. As was explained in committee testimony this year to members of the Legislature, approximately 5 million employees are misclassified as independent contractors across the country, costing the United States more than $4.7 billion each year in uncollected income taxes.
This practice is not only criminal but also gives employers a distinct advantage in retaining jobs or bids over those businesses that play by the rules not to mention the extra taxes paid by the rest in order to cover the tax cheats.
Through this fraudulent practice, employers in Nebraska and other states have saved millions of dollars in expenses estimated at 30 percent of payroll and other expenses while compromising protections to employees and straining state resources across the country.
Moreover, misclassification is a prominent accounting trick in many industries, such as parcel delivery services and real estate, and many of the country’s largest corporations have been found guilty of the practice.
Meanwhile, on the smaller business level, states are beginning to better grasp the effect of this practice. In fact, a handful of states, including our neighbors in Kansas, have formed task forces to study the prevalence of the issue. Additionally, legislation that addresses various facets of the issue has been introduced in dozens of other states.
State Sen. Steve Lathrop, chairman of the Legislature’s Business and Labor Committee, and the Legislature deserve credit. They worked to develop a proposal that seeks to prevent unscrupulous businesses from avoiding their responsibilities at the expense of their workers and other businesses that play by the rules.
Only time will tell if this legislation will serve as the definite answer to misclassification abuses in Nebraska. At the very least, the debate has advanced the awareness of this anti-competitive practice, and we look forward to the strict enforcement of the new statute.
Nebraska’s economy is made up of workers who deserve better protections from those aiming to skirt the system. The state’s responsible employers who pay their taxes and respect their workers’ rights also deserve the same form of protection.
We thank the Legislature for their leadership on this matter.
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