Culver considers expanding state payroll to combat worker misclassification

On Monday, Iowa Gov. Chet Culver told reporters from The Des Moines Register in an exclusive interview that he was considering freezing current pay rates for state employees and even merging some departments in order to save state monies. But in a Tuesday press conference, Culver announced a special task force that recommended nine new state employees and then nodded his approval.

The report, given to Culver by the five-member Independent Contractor Reform Task Force he organized by executive order on July 16, said the new employees and related expenses would cost roughly $770,000. The employees are needed, according to the report, to provide adequate investigation and enforcement of existing statutes governing the legal and appropriate employment of independent contractors. The employees would constitute a Misclassification Unit within Iowa Workforce Development.

House Minority Leader Kraig Paulsen, R-Hiawatha, criticized Culver for saying one thing and doing another.

“Two weeks ago the governor was forced to implement across the board budget cuts,” Paulsen said in a prepared statement. “Then last week his own department heads asked to increase their budgets by 5.7 percent. Now the governor wants to spend almost $1 million on a task force. During this time of economic uncertainty, the governor should be looking for ways to save taxpayer dollars, not spend more of them.”

Culver and Elisabeth Buck, director of Iowa Workforce Development and chairwoman of the Contractor Reform Task Force, touted their belief that the new enforcement unit would likely pay its own salaries and expenses by collecting now-missing state revenue. Employers who illegally or inappropriately classify workers as independent contractors do not pay Social Security, workers’ compensation or unemployment taxes for the employee. The task force estimated in its report that $2.72 billion is lost at a national level because of such misclassifications, but stopped short of estimating Iowa’s potential losses.

Employers caught classifying workers inappropriately can face a $500 state fine, but there are no other penalties except for paying back taxes. At the federal level, however, there are fines.

While completing the report, Buck had her department sample the construction industry and discovered roughly 15 percent of the businesses had inappropriately classified workers as independent contractors. Without the new unit, she cautioned in the report, Iowa Workforce Development would not have the resources to crack down on unscrupulous employers.

“Employers who work hard and contribute to the local economy should not have to compete with business owners who choose to break the law for their own unfair advantage,” Culver said in a prepared statement. “Independent contractor reform will make it easier for honest businesses and contractors to compete by removing the unfair advantage of employee misclassification, and as a result improve the lives of hard working men and women across the state.”

Paulsen accused Culver of overreacting.

“These additions the governor proposes are being made to address an issue that I have yet to receive a single constituent contact on,” he said.

In addition to the creation of the nine-person Misclassification Unit, the task force has recommended:

• Review of state agency regulations to determine how agencies can better share information.
• A data-sharing agreement between state agencies and the Internal Revenue Services to track misclassification of workers.
• Retaining the existing definition for independent contractors until one year of increased enforcement is complete.
• Revisiting all variable issues by a reconvened task force after one year of increased enforcement is complete.

The full task force report has been made available on the Iowa Workforce Development Web site.