Pennsylvania lost up to $124.5 million in tax revenue in 2019 due to misclassification of workers as independent contractors, according to a report on the issue submitted earlier this month by the Joint Task Force on Misclassification of Employees. In addition, the unemployment compensation fund loses $131 million annually and workers who suffered injury or illness in 2020 lost $176 million without workers’ compensation coverage.
The task force, which was created by Act 85 of 2020 [1] to study the effects of worker misclassification, submitted its preliminary report [2] to the state General Assembly March 1. The report summarized the effects of misclassification, including:
- $131 million. Annual lost revenue to Unemployment Compensation Trust Fund due to misclassification.
- $6.4 million to $124.5 million. Estimated range of lost revenue to General Fund due to misclassification in tax year 2019.
- $176.3 million. Estimated losses to the estimated misclassified employees who suffered injury or illness at work in 2020 without workers’ compensation insurance.
State Rep. John Galloway, D-Bucks, announced that he is working with colleagues to introduce legislation to address the 15 recommendations made by the task force, according to The Reporter [3].
Among those recommendations are that the General Assembly:
- Adopt the ABC test as a baseline standard to clearly delineate the difference between “employee” and “independent contractor.”
- Require all state agencies to pull current licenses or not renew current licenses if a business is determined to have knowingly misclassified workers and has not paid the fines and fees associated with that violation or previous violations.
- Enhance the penalties associated with worker misclassification violations under Act 72.
- Provide Labor & Industry with resources to hire additional investigative and support staff as well as the authority to issue administrative stop work orders against entities and/or individuals that have been found to have employed misclassified workers.
- Recommend that the Pennsylvania General Assembly provide Labor & Industry with statutory authority to debar companies or individuals for knowing violations or for multiple violations of Act 72.
- Require labor brokers doing business in the commonwealth to be registered and bonded, including but not limited to reporting requirements for workers’ compensation, unemployment compensation, and federal and state taxes, to safeguard workers from being misclassified as independent contractors.
- Allocate funds and expand posting requirements for a statewide effort of education and public outreach led by state agencies in conjunction with stakeholders to educate the public, workers, and business owners about the worker misclassification issue and the obligations under the law.
- Authorize a private right of action for misclassified employees and impose a penalty to be paid directly to plaintiffs that successfully establish a claim of misclassification in addition to other rights to which they are entitled under the WPCL and modeled after N.J.S.A. § 34:1A-1.18.