Raleigh, N.C. — Gov. Pat McCrory signed an executive order Friday designed to curtail employers' ability to classify workers as contractors to get around paying certain state taxes.
The order creates an Employee Classification Section in the North Carolina Industrial Commission to streamline information sharing among the commission, the Departments of Labor, Revenue and Insurance and the Division of Employment Security and to facilitate enforcement actions.
"When unethical employers improperly classify their employees as independent contractors, they not only put our state’s workforce at risk but also put ethical businesses at a competitive disadvantage and rob taxpayers of significant revenues," McCrory said in a statement. "The Employee Classification Section will work with other state agencies to ensure that every potential violation of our state’s laws will be thoroughly investigated."
An investigative report by The News & Observer newspaper last year found widespread cheating of the system by unscrupulous employers. By classifying full-time employees as independent contractors, such employers can avoid having to pay FICA, unemployment and workers' compensation taxes for them.
The employment fraud is estimated to cost the state hundreds of millions of dollars every year in lost taxes. It also leaves the workers without recourse to workers' compensation if they're injured on the job and without unemployment benefits if they're laid off.
A bill that would have increased oversight of employee classification and imposed fines on violators stalled in a House committee this summer.
Rep. Gary Pendleton, R-Wake, said the bill was pulled from the House calendar after newspapers, concerned over how paper carriers would be classified, lobbied their local lawmakers to oppose it.