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Total netted from state’s misclassification fight exceeds $1.1 million

State officials’ efforts to crack down on companies that misclassify direct employees as independent contractors have generated more than $1.1 million for the state’s unemployment-benefits system over the past few years.

The state began stepping up its enforcement of misclassification laws in May 2013. Since then, those efforts have recovered nearly $1.13 million worth of unpaid unemployment-insurance taxes, penalties and interest, according to a report on the state’s unemployment fund released by the Wisconsin Department of Workforce Development on Wednesday.

Worker misclassification is believed to be particularly rampant in the construction industry, where frequent seasonal layoffs can blur the line between a permanent employee and someone hired for a particular job. Industry officials say deliberate misclassification not only deprives the state of unemployment taxes and other resources; it also gives dishonest companies an advantage by enabling them to avoid the sort of costs that their more scrupulous rivals often end up rolling into bid prices.

The state reported Wednesday that auditors found 8,613 misclassified workers at Wisconsin companies last year. The same year saw tipsters use a state-run website to report 59 instances of suspected misclassification.

Those tips led to 44 separate investigations, according to the DWD. On average, every audit conducted by the DWD discovered 10 workers who have been misclassified and recovered $3,605 in unpaid unemployment taxes, according to Wednesday’s report.

Last year saw state legislators pass a law increasing the penalties for companies that misclassify workers. Violators can now be forced to pay $500 for every employee who was misclassified, although no more than $7,500 for a single incident of misclassification.

Employers who end up having to pay those administrative penalties and nonetheless go on to misclassify workers again are then subject to criminal fines. They can be made to pay $1,000 for every employee who is found to be misclassified, not to exceed a total of $25,000.

Also on Wednesday, state officials reported that the amount of unemployment benefits that were erroneously paid out because of fraud went from about $13.38 million in 2015 to $8.66 million in 2016, a decrease of 35.3 percent. The DWD noted that part of the drop was no doubt attributable to the fact that all unemployment claims decreased over the two-year period.

The DWD reported earlier this year that fewer initial unemployment claims — meaning those filed by someone who has just lost a job — were filed in December than in any month going back 1988. And the number of continuing monthly claims — meaning those filed by people who have already been receiving unemployment benefits — was at its lowest in 30 years.

Despite the likelihood that the drop in overpayments is connected to the decrease in all benefits payments, the DWD’s report from Wednesday sought to give some of the credit to recently adopted state policies. Since 2011, Gov. Scott Walker and Republicans in the state Legislature have passed a series of laws meant to fight attempts to defraud the state’s unemployment-benefits fund.

One change modified the state’s definition of a type of fraud known as concealment. The department now has a specific list of considerations it is allowed to take into account when deciding whether someone has purposely defrauded the unemployment-benefits fund.

About Dan Shaw, dan.shaw@dailyreporter.com

Dan Shaw is the associate editor at The Daily Reporter. He can be reached at dan.shaw@dailyreporter.com or at 414-225-1807.

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