Missouri Department of Labor has provided closed captioning transcripts of our videos for your needs.
Department Featured on Top Money Managers - Episode 3
>>LINDA BROTHERTON: Welcome back to Top Money Managers, Saint Louis Edition. I’m Linda Brotherton . Most people are completely unaware of the impact that worker misclassification has on our state and our business community. To help us understand this issue better and to explain that some businesses are actually owed money from the government is Matt Hankins (ph.sp.). He’s worked for the State of Missouri for almost fifteen years and is currently serving as the Chief over Tax Sections of the Division of Employment Security. Good morning Matt.
>>MATT HANKINS: Good morning Linda.
>>LINDA: Let’s start off Matt, and just explain to us what is worker misclassification?
>>MATT: Well simply put Linda, worker misclassification is just a term that the federal and state agencies use, uh, just to define businesses that may be classifying workers as independent contractors when by the law they actually should be reported as employees.
>>LINDA: So tell us Matt, how does worker misclassification impact our state?
>>MATT: Well obviously, me being with the Division of Employment Security, Missouri Department of Labor, um, there’s definitely impacts to the state, uh, from a tax perspective. Our unemployment insurance programs suffer when there’s worker misclassification. Same with our worker’s compensation program and other tax revenues that might be brought in, uh, you know, that are related to employment taxes. But, uh, what’s not discussed enough is the impact that it has to the business communities. So if you consider those who are properly reporting their workers, um, they’re--they’re taking on that tax burden and they’re having to incorporate that into their costs and how they budget their business. Whereas a business who is failing to report properly, they’re able to significantly lower their overhead. They’re being able to take that tax burden, push it off of the business and onto the worker. So from a practical perspective, what they’re able to do is bring their goods and services to market at a lower cost than their competition, which is simply unfair. So if you consider just, uh, you and I maybe needing work done at our--at our home, maybe we entertain three bids from three different companies, two of them are properly reporting their workers and one is not. That one that’s not reporting the workers is able--is going to be able to bring you a bid at a much lower cost. And now to a consumer that might seem like a great thing but what really is happening there is it’s an unfair disadvantage for those people who are truly reporting their workers like they should be.
>>LINDA: Unfair playing field in the business community.
>>LINDA: I get that. But, all right Matt, how and why does worker misclassification occur?
>>MATT: Well the vast majority of it--that’s something--that’s a good question because the vast majority of businesses are not willfully or ill--have an ill intentions to misclassify their workers. It’s usually a misinterpretation or misadministration of the law. Just a misunderstanding, so, um, what happens is, uh, but in the course of that discussion though there’s also another term that we use, and that is 1099 fraud.
>>LINDA: Which are totally different Matt? There’s 1099 fraud versus being misinformed are totally two different issues.
>>MATT: Right. So if you were to think all 1099 fraud is worker misclassification but not all worker misclassification is 1099 fraud. So 1099 is just the form that, uh, that a company’s gonna give to a worker at the end of a year, uh, typically an independent contractor. Think of it the same as our W-2’s that we might get after a full years’ work that shows us what we earned, the taxes taken. But 1099, that tax burden’s pushed from the business onto--onto the worker. 1099 fraud occurs when the business willfully and knowingly intends on, uh, misclassifying their workers for the sole purpose of avoiding the tax payment. So that’s where it becomes fraud.
>>LINDA: Got it. Now Matt a lot of business owners watch our show, so the businesses that operate in Missouri need to understand this very important fact that you told me. The law defines who is and who is not considered an employee, correct?
>>MATT: That is absolutely correct. Probably one of the most frequent things we run into is where the business, the worker or both the business and the worker entered into a contractual arrangement that they feel makes the worker an independent contractor but that--that is subservient to the law. The law is always going to dictate--the Administration Application Law is going to dictate whether or not that worker is truly an employee or an independent contractor.
>>LINDA: Got it. So misclassification, Matt costs our state 10 million dollars a year and is obviously a detriment, um, to our business community. Um, so how do business owners or employees find out if they are misclassifying workers or if they are a misclassified worker? How do we know? How do they find out?
>>MATT: Right. The costs to the state are--are--are drastic. As you mentioned the 10 million dollars that you referred to there actually is just for unemployment insurance program. So beyond that, if you consider worker’s compensation premiums, other tax revenues generated from employment, it’s substantially higher. Uh, higher yet, the federal government anticipates or estimates the cost of worker misclassification at being somewhere between 1.6 billion and 3 billion dollars per year.
>>MATT: So absolutely, um, eyes and ears of the business community -
>>LINDA: That’s a lot.
>>MATT: - to--to let us know. I mean the best thing they can do is--is report any instances or any occurrences or issues they think they’re seeing with either their own classification as a worker or with other businesses they feel aren’t properly classifying those workers, is to report those to the Department.
>>LINDA: And they do that Matt, by contacting the Department of Labor speaking to you?
>>MATT: Yes ma’am. We--we actually will accept those tips in any way, shape or form that we can get them. So if it’s, uh, we have some online tools that are available for them to use. I think they can access the contact information through your alls website and my profile. But we have tip tools to be used online, we’ll accept it via e-mail, we’ll accept it in letter form, they can even call us directly. And all that contact information is available on your site.
>>LINDA: Thank you so much Matt for your time and your work at the Department of Labor. If you have a question for the Department of Labor on misclassification of workers, please visit our website and click on the Department of Labor’s profile. Up next we will be discussing the cost of our elections. Our greatest treasure, the right to vote has a big price tag. We’ll be right back.
>>(UNIDENTIFIED VOICE): The opinions expressed are for general information only and are not intended to provide specific investment or purchase advice. It is recommended that you speak with a financial, legal, tax professional regarding your individual situation. The opinions expressed do not necessarily reflect those of Top Money Managers or the station.