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It’s time to deal with our underground economy

OLYMPIA (Jan. 31, 2013) — Today, legislators will hear about a proposal that would raise desperately needed state revenue — without raising taxes. It would also protect employers from being undercut by competitors who cheat and break the law. Plus, it would protect Washington workers from being illegally denied their rightfully earned wages and benefits.

wage-theft-dollar-hookThe legislation, HB 1440, aims to address our state’s underground economy, wage theft and employee misclassification, and it should be considered a win-win proposal for labor, business and all levels of government.

The underground economy — when work is performed but not properly reported in order to shortchange workers and/or avoid paying taxes — is illegal activity, but it happens every day in every sector of the economy. It costs Washington state billions of dollars in uncollected revenue and harms law-abiding employers that must struggle to compete with unscrupulous, illegal businesses. In terms of employment, it commonly occurs in two forms:

Wage Theft is when employers illegally withhold workers’ pay by refusing to pay for hours worked, deducting unfair fees or fines, refusing to pay overtime or minimum wage, and/or withholding final paychecks when workers leave a job.

Employee Misclassification is when unscrupulous employers treat workers who should be considered employees as “independent contractors” in order to deny workers access to minimum wage, overtime pay, and family and medical leave. This is also done to avoid paying federal taxes, including Social Security and Medicare, and state taxes such as B&O, unemployment insurance and workers’ compensation. This obviously harms the employees who are denied fair pay and the safety nets for laid-off and injured workers, but it also harms other employers who play by the rules and are put at a competitive disadvantage.

“Wage theft and employee misclassification are stealing from workers and costing our state government millions of dollars each year,” said Teresa Mosqueda, Legislative and Policy Director for the Washington State Labor Council. “When employers deny minimum pay, withhold wages for work, deny benefits, and avoid paying taxes on employee wages, they hurt workers, our communities and the business climate in our state.”

PP-Underground-EconomyThe WSLC has joined with other labor, community, religious and small business organizations to form the Stop Wage Theft Coalition. See this Underground Economy & State Revenue Recovery position paper for more information about the prevalence of wage theft and employee misclassification, and the coalition’s proposed solutions.

HB 1440, sponsored by Rep. John McCoy (D-Tulalip) and 26 co-sponsors, will be heard today (Jan. 31) at 1:30 p.m. in the House Labor and Workforce Development Committee. The hearing will include testimony from workers victimized by wage theft and misclassification. Watch live on TVW.

HB 1440 would:

  • Create a clear and more consistent definition of employee as compared with an independent contractor;
  • Still allow legitimate independent contractors to maintain their independence;
  • Ensure that employees can collect after they win cases for unpaid wages against their employers;
  • Ensure victims of retaliation are protected under the law and have recourse; and
  • Bring in the revenue owed to the state by catching employers who are cheating the system and their workers.

HB 1440 is not an attempt to end the use of legitimate independent contractors. It aims to address the deliberate misclassification of workers who should be considered employees, which is rampant. A report by the U.S. Government Accountability Office estimates that employers illegally pass off 3.4 million regular workers as independent contractors, and the U.S. Labor Department estimates that up to 30% of companies have misclassified at least some employees.


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