Policy Hearing: Misclassification hurts workers, taxpayers and state
Testifiers detail how illegal act denies worker protections, revenue
Policy Committee January 27, 2023 | 12:36 PM
PITTSBURGH, Jan. 27 – Armed with the findings and calculations by a joint task force, the PA House Democratic Policy Committee heard detailed testimony on how the misclassification of workers in Pennsylvania illegally denies worker protections while also denying valuable revenue to the state.
Misclassification of workers is defined as the act of an employer refusing to hire an employee and instead using the worker as an independent contractor, thereby allowing the employer to avoid paying state, local and federal taxes, and also skirting workers’ compensation and unemployment compensation premiums. The issue is further compounded when a misclassified worker is then hurt on the job and denied the protections they have rightly earned.
“The widespread illegal practice of misclassification happening throughout Pennsylvania is not limited to just construction workers,” said state Rep. Anita Kulik, who hosted the hearing at Carpenters Hall in Pittsburgh. “Sadly, we heard how this illegal practice is not only robbing workers of wages and protections, but it also passes tax burdens onto law-abiding employers and employees throughout the state.”
The policy hearing, the committee’s second of the week in Allegheny County, was the first hosted by the Subcommittee on Labor, Energy and Development Chairman Nick Pisciottano.
“The lost revenue is astronomical, and the lost protections, including health insurance, is sickening – not to mention devastating to our workers and their families,” Pisciottano said. “We heard the practice described as insurance fraud, a crime that hurts all Pennsylvania families and workers since it shortchanges every taxpaying resident.”
The Joint Task Force on the Misclassification of Employees found misclassification resulted in and annual loss of $91 million to Pennsylvania’s Unemployment Compensation Trust Fund. Between $6.4 million to $124.5 million is estimated to have been lost in revenue to the General Fund – which funds schools and pays for road repairs – during the tax year 2019. Another $153 million is estimated to have been lost by workers in 2021 who suffered injury or illness but were denied protections they deserved and earned.
“This is a widespread, multimillion-dollar illegal practice happening across Pennsylvania in numerous industries and career fields,” Policy Chairman Ryan Bizzarro said. “It’s robbing our workers, it’s hurting our families, and – quite honestly – it’s creating a greater tax burden on the citizens and employers who are living by the rules and paying their fair share. The testimony we heard today should motivate responsible lawmakers to support a multi-faceted response, including several of the recommendations put forth by the task force.”
Another study found that 28% of families of Pennsylvania construction workers, who are often misclassified, are enrolled in one or more safety net programs at a cost to the state and federal government of $428 million per year.
“I want to thank the committee for shining a light on this important issue that has had a devastating effect on workers, and I would encourage all lawmakers to pursue working on legislative fixes to protect all Pennsylvania workers from this illegal practice,” said Darrin Kelly, the Allegheny-Fayette Central Labor Council president.
Residents can find submitted testimony from the hearing at https://bit.ly/Policy12723 or find more details about the Policy Committee at https://pahouse.com/policy.