Misclassification bill would toughen penalties

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A bill before lawmakers would ratchet up penalties for those who deliberately misclassify workers in the construction industry.

At a public hearing Thursday of the state Assembly’s committee on jobs and the economy, various speakers said the state’s current arsenal of deterrents are too weak. In their place, a council charged with recommending unemployment-law changes is calling for the adoption of a series of fines.

The system proposed by the state’s Unemployment Insurance Advisory Council would start by imposing a $500 administrative penalty on employers for every employee whom they’ve been found to have misclassified, up to a maximum of $7,500. For employers who had already been charged such an administrative penalty at least once, they would next find themselves having to pay a $1,000 for every employee they were subsequently found to have misclassifed, up to a maximum of $25,000.

Elsewhere, employers would be subject to administrative penalties of $1,000 for every employee they were found to have coerced into being misclassified. The maximum for such penalties would be $10,000 in any given year.

Current law lets Wisconsin officials charge contractors $25,000 for every proved instance of worker misclassification.

Yet, although that penalty was passed by the Wisconsin Legislature in 2010, state officials have yet to impose it. For now, violators must simply pay back any taxes they owe the state, plus interest.

Mark Reihl, a member of the Unemployment Insurance Advisory Council, told lawmakers Thursday that the law has proved to be more or less toothless.

“There really wasn’t enough of a penalty,” said Reihl, who is also executive director of the Wisconsin State Council of Carpenters. “All they have to do is pay back the money owed plus interest. There was no deterrent in there, so the council has approved some penalties to act as a deterrent.”

The heightened penalties for misclassification are among various changes called for this year by the Unemployment Insurance Advisory Council. Lawmakers are now considering all the proposals as part of one bill: Assembly Bill 819.

Reihl has noted on many occasions that contractors gain unfair advantages when they misclassify workers. The unscrupulous practice, for one, lets companies avoid paying unemployment taxes and workers’ comp premiums and can thus help them submit lower bid prices.

“This is a big problem in construction… When (employers) adopt these practices they are adopting a business model to take advantage of the worker and everyone loses,” Reihl said Thursday.

“I’d like to see stronger penalties, but this is a good start.” Follow @erikastrebel