Workers in wrong category costing state insurance bucks

Almost one-third of audited employers in the Bay State in 2019 were found to have misclassified workers in jobs including construction, home health care and janitorial work — which one expert considered to be a massive undercount, potentially costing the state’s unemployment coffers millions of dollars.

“The capacity for auditing is well under the scope of the problem,” said Andrew Stettner, a senior fellow at the Century Foundation.

In Massachusetts, 13% of employers had misclassified at least one employee, Stettner said Friday during a hearing of the Unemployment Insurance Trust Fund Study Commission. A disproportionately high number of these workers were in the construction industry — up to 17.9%, he said — costing the state up to $40 million. The issue is particularly concentrated in the residential construction industry.

Misclassification is also heavily concentrated among people of color, as well as those without a physical office, such as home health care workers, janitors and truck drivers, in roles that are often subcontracted out, skirting the employment question altogether, and making these workers ineligible for unemployment insurance.

“This is the result of … what we call a ‘fission economy,’” he said. “In many sectors, the actual money-maker or the marketing controller is high up and they contract out deep into the supply chain. And many of those workers end up being subcontractors and really misclassified as employees.”

To combat this, Stettner recommended upping the enforcement of employee classification through audits. In 2019, the state conducted only 2,500 audits, found 772 (30%) misclassifications, and recouped only $57,220 in lost employer contributions. He also recommended increasing audits not triggered by complaints and focusing them on large companies in industries known for these misclassification practices.

Stettner also took aim at the losses from gig workers, including rideshare drivers, who are currently ensnared in a debate on Beacon Hill about whether they should be considered independent contractors or employees. Both a potential ballot question and bill in play would intentionally carve them out as contractors, while giving them some benefits.

In Massachusetts, he estimated that there could be over 200,000 gig workers in the state for companies like Uber, Lyft, DoorDash and Instacart.

While there is no estimate available for the amount lost in unemployment trust fund cash in Massachusetts, that figure was estimated to be $400 million over five years.

Although these rideshare companies pay nothing in unemployment taxes, over 300,000 gig workers in Massachusetts received federal pandemic-era unemployment benefits.