Politics & Government

State, federal officials say they’ll go after labor scheme, tax cheats


After years of nibbling away at a pervasive labor scheme that cheated vulnerable workers and left honest employers struggling, state officials agreed Wednesday to work side by side with federal officials to combat the problem.

The agreement breaks down long-standing barriers between federal labor officials and leaders at the state Industrial Commission, which was charged last year by Gov. Pat McCrory with coordinating efforts among state agencies to find and crack down on scofflaw employers.

The agreement allows federal officials to share their data and knowledge with North Carolina officials, much as they have with 32 other states working to combat misclassification. Federal officials have agreed to join some of the state’s efforts to investigate certain employers who have been flagged as likely offenders.

“The Wage and Hour Division continues to attack this problem head on through a combination of a robust education and outreach, and nationwide, data-driven strategic enforcement across industries,” said David Weil, administrator of the federal Wage and Hour Division. “Our goal is always to strive toward workplaces with decreased misclassification, increased compliance, and more workers receiving a fair day’s pay for a fair day’s work.”

The agreement follows years of reporting by The News & Observer and The Charlotte Observer. Misclassification, the practice of treating workers as contractors when they should be employees, had become so pervasive in North Carolina that lost tax revenue from the construction industry alone reached nearly $470 million annually, the N&O estimated in 2014.

State agencies responsible for detecting violations of tax and labor laws – the Department of Labor, Department of Revenue, Division of Employment Security and the Industrial Commission – were not communicating and were failing to bring problem employers into compliance. The lack of regulatory oversight had made North Carolina a breeding ground for companies willing to break the labor and tax laws.

Vulnerable workers and law-abiding employers felt the problem more intimately. Workers treated as contractors often toiled in dangerous and fickle jobs without the protection of workers’ compensation in case they were injured or unemployment pay if they were laid off.

Those costs, along with other unpaid taxes, meant companies that misclassified workers could shave 20 percent or more off their operating costs. Employers that followed the law could not compete.

Doug Burton of Whitman Masonry of Wake County watched his business struggle during the recession while competitors who treated their workers as contractors thrived. The N&O highlighted Burton’s struggle in a 2012 story.

Burton says that misclassification persists, and in some regards, it has worsened.

“From where I’m sitting, it’s business as usual,” Burton said. “I’m amazed that (the) government hasn’t really addressed this. It’s low-hanging fruit. Why can’t we just clean this up and make this fair for everybody?”

Efforts to pass legislation to crack down on businesses that cheat failed in 2015.

McCrory had tasked the Industrial Commission to find businesses that failed to buy workers’ compensation insurance for their workers as required. With fines and criminal charges, the commission made strides to get companies into compliance.

In December, McCrory established a position at the Industrial Commission to coordinate efforts across state agencies to deal with misclassification. Part of that effort involves sharing data between agencies that handle unemployment taxes, state taxes and workers’ compensation.