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House of Representatives
Session of 2017 - 2018 Regular Session


Posted: August 15, 2018 09:02 AM
From: Representative Gerald J. Mullery
To: All House members
Subject: Misclassification Penalties
In the near future, I will be introducing legislation that is part of comprehensive package amending the Construction Workplace Misclassification Act (Act 72 of 2010) to reduce the practice of intentionally misclassifying employees as independent contractors.

As you may know, intentional misclassification of workers occurs when unscrupulous employers attempt to reduce overhead costs by designating their workers as independent contractors instead of as employees or by hiring them “off-the-books.” Under these schemes, employers avoid paying income taxes, minimum or overtime wages, workers’ compensation premiums and contributions to the unemployment compensation system. They also avoid coverage by the federal Americans with Disabilities Act, the Occupational Safety and Health Act, and the Fair Labor Standards Act. Among its many consequences, this practice provides dishonest employers with an unfair advantage over employers who play by the rules and pay their share taxes. Moreover, misclassification causes our state to lose out on significant revenues, and it denies workers important employment rights and benefits that they may truly need to rely on. Misclassification is already illegal, but we cannot effectively curb the practices based on existing laws.

As proof that misclassification is occurring, the most recent study of UC audit data shows that there are approximately 580,000 misclassified workers in Pennsylvania which has resulted in at least $200 million losses to the Unemployment Compensation Trust Fund and $81 million losses to the Workers’ Compensation Security Fund. Furthermore, these numbers are likely underestimated since audit data does not account for employers that pay their workers entirely “off-the-books.”

In 2016, the Pennsylvania Department of Labor and Industry entered into a Memorandum of Understanding (MOU) with the United States Department of Labor, agreeing to make a concerted effort toward “promoting compliance through the dissemination of clear and accurate information and to enhance misclassification enforcement by utilizing information sharing and cross-agency coordination.” My bill takes the necessary legislative steps towards fulfilling this agreement by increasing the penalties for the misclassification of workers and applying half of the money collected under this act to the costs of implementation, enforcement, and administration.

I hope you will join me in sponsoring this important legislation.

Introduced as HB2439