Misclassification Hurts More Than Truck Drivers: IL Lost Out on $245.6M in Taxable Income in 2013

The Illinois Department of Employment Security (IDES) has released new numbers showing that the state’s employers have nearly 20,000 workers misclassified as independent contractors, which cost the state $250 million in wages and contributions to social programs in 2013. Illinois taxpayers ultimately cover the costs of misclassification as “it robs the state of payroll taxes normally removed from a worker’s paycheck.”  

IDES Director Jay Rowell told the Illinois Business Journal:

“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.”

The new numbers come from a series of audits which the Bureau of Labor Statistics says were the most productive employer audits in the nation.  Newly uncovered information includes:

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 Measures.

Misclassification is leading to less money in trust funds used to pay unemployment insurance and worker’s compensation claims. Companies that misclassify workers can under-bid law-abiding employers by as much as 30 percent.

Jorge Ramirez, President of the Chicago Federation of Labor, discussed how important reversing the trend of employee misclassification is to the workforce. “The labor movement is about creating strong communities and protecting workers from unscrupulous employers.  Tactics like worker misclassification erodes that by violating workers’ employment and labor rights,” he said.

Illinois employers found to be misclassifying their employees may face fines of at least $10,000 and a 60 percent interest rate on failed payments.  

Go to IL State Page
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