Misclassified employees force taxpayers
to subsidize costs, harm economy
Illinois led nation in auditing problem
Send a link to a friend
[August 15, 2014]
CHICAGO – Illinois employers
wrongly classified nearly 20,000 of their workers as independent
contractors rather than full-time employees in 2013, skipping out on
more than $250 million in wages and contributions to funds that
support laid-off and injured workers, the Illinois Department of
Employment Security said today.
Taxpayers ultimately cover the costs of misclassified workers
because it robs the state of payroll taxes normally removed from a
worker’s paycheck. Those funds typically are not removed from
payments given to independent contractors. In some cases, a
homeowner could be responsible for costs incurred if a misclassified
worker is injured while working on the owner’s dwelling.
“The consequences of misclassification are easy to see when a worker
is hurt or an honest business owner is under-bid for a project. What
hides in plain sight are the socialized costs that occur when a
dishonest employer deceives a customer and cuts corners by not
playing by the rules,” IDES Director Jay Rowell said.
“The labor movement is about creating strong communities and
protecting workers from unscrupulous employers,” said Chicago
Federation of Labor President Jorge Ramirez. “Tactics like worker
misclassification erodes that by violating workers’ employment and
The audits also showed that Illinois held the most productive
employer auditing effort in the nation, according to data compiled
by the Bureau of Labor Statistics. Illinois audited 3,635 employers
in 2013. In doing so it identified 19,765 misclassified employees,
$245.6 million in unreported taxable wages and $5.1 million in
unreported contributions that fund unemployment insurance benefits.
Illinois led by a wide margin all other states in Effective Audit
Fighting misclassification fraud is critical to workers, employers
and taxpayers. Workers benefit because misclassification leads to
less money in trust funds used to pay unemployment insurance and
worker’s compensation claims. Employers benefit because companies
that misclassify workers can under-bid law-abiding employers by as
much as 30 percent. Taxpayers benefit because employers who
misclassify employees typically do not carry insurance, or do not
carry insurance at appropriate levels to protect the consumer if a
worker is injured on the job. If a worker who has been misclassified
and could arguably be considered an employee of the homeowner, the
homeowner bears liability for any injury.
[to top of second column]
Generally speaking, to be considered an independent contractor, a
worker must be free from direction or control. A worker is not an
independent contractor just because an employer designates him or
her as such – even if the worker agrees to the designation.
Employers breaking the law could face fines of at least $10,000 and
up to 60 percent interest on failed payments. The Illinois
Department of Labor, Illinois Department of Employment Security,
Illinois Department of Revenue and Illinois Workers’ Compensation
Commission are working together to help responsible business owners
and punish fraud. More is available at
Like several other states, Illinois uses the ABC test to determine
if an individual is an employee or an independent contractor.
Construction related workers are presumed employees, and not
independent contractors, unless the company can prove that the
worker is A) free from direction and control of the company and B)
the work performed is generally outside the scope of work performed
by the company and C) the worker is engaged in an independently
established trade or business.
[Text received; ILLINOIS DEPARTMENT
OF EMPLOYMENT SECURITY]