Sens. Brown, Harkin, Blumenthal Introduce Legislation to Prevent Payroll Fraud, Protect Workers’ Rights, and Level Playing Field for Employers

Senators: Payroll Fraud Punishes Taxpayers, Workers and Companies Who Play by the Rules 

Amidst Assault on Workers’ Rights, Senators Introduce Bill to Ensure Workers Have Access to Earned Benefits and Protections

WASHINGTON, D.C. — U.S. Sens. Sherrod Brown (D-OH), Tom Harkin (D-IA), and Richard Blumenthal (D-CT) today introduced legislation that would cut down on payroll fraud, protect workers’ rights and level the playing field for all employers. The bill, known as the Payroll Fraud Prevention Act, would prevent payroll fraud by employers that misclassify their workers as independent contractors and would provide workers with the protections they are entitled to and the benefits they have earned. The bill would ensure access to safeguards like minimum wage and overtime, health and safety protections, and unemployment and workers' compensation benefits.

“Intentionally treating workers as subcontractors when they really are employees is payroll fraud: it cheats workers, taxpayers, and other businesses that play by the rules,” Brown said. “By cracking down on payroll fraud, this bill will protect workers and level the playing field for all employers. Honest businesses have enough challenges to worry about in a tough economy. They should not have to compete against companies that misclassify workers and evade their tax responsibilities. When companies cheat, taxpayers are left on the hook instead—and public services that benefit everyone are short-changed because of unscrupulous business practices.”

“And at a time when our economy is still on the mend—not to mention the troubling attacks on collective bargaining rights for workers across the country—we must ensure that workers have access to the benefits and protections that they have earned and are entitled to,” Brown continued.

“When businesses misclassify their workers, they’re not just skirting the tax code to make a few more bucks - they’re putting the health, safety, and financial security of their workers at risk. This bill will ensure that workers aren’t denied fair wages, unemployment benefits, and other critical workplace protections, and it will relieve the burden on American taxpayers who foot the bill when businesses refuse to play by the rules,” said Senate Health, Education, Labor and Pensions (HELP) Committee Chairman Harkin. 

“Misclassification of workers cheats employees of fair pay and access to vital benefits, and defrauds taxpayers. As middle class families are struggling and our economy continues to recover, this legislation would ensure all employees a fair workplace, and make sure that small businesses have a level playing field. When workers are misclassified as independent contractors, they are exploited with lower pay and businesses who play by the rules are disadvantaged in competing for contracts,” Blumenthal said.

“The National Electrical Contractors Association commends Senator Brown for his introduction of legislation that will help crack down on employers who engage in payroll fraud by misclassifying employees as independent contractors,” said Greg Stewart, CEO of the Superior Group in Columbus, Ohio. “Such employers, many of which are part of the construction industry, gain a competitive advantage by cheating the system and thereby can submit bids on projects that are often much less than employers who obey the law and properly classify their workers as employees. This practice is very unfair to ethical, reputable businesses, who see that taxes are paid.”

The Payroll Fraud Prevention Act would protect workers from being misclassified as independent contractors, thereby ensuring access to safeguards like minimum wage and overtime, health and safety protections, and unemployment and workers’ compensation benefits.  The bill would also prohibit employers from using misclassification to avoid paying their fair share of taxes.

Misclassification undermines the budgets of state and local governments—resulting in increased costs for taxpayers or reduced services. According to a study released in February 2009 by the Ohio Attorney General’s office, Ohio loses at least $160 million a year to each year from worker misclassification. 

Tens of thousands of employers misclassify their employees as independent contractors, and as a result, these workers are not eligible for benefits such as minimum wage and overtime, unemployment insurance, and workers' compensation. Misclassified workers are also not protected by anti-discrimination and health and safety laws.

Brown introduced similar legislation in the 111th Congress. Harkin convened a HELP Committee hearing on worker misclassification in June 2010, while Brown was a member of the Committee.