Briefing: ‘Undergound Economy’
The state's Executive Office of Labor and Workforce Development (EOLWD) announced last month that it collected $15.6 million owed to the state and workers by the underground economy.
The money was owed in the form of unpaid wages, back taxes, unemployment insurance premiums, fines and penalties, which were discovered through investigations by a special task force.
What is the “underground economy?”
It's a term used to describe businesses that misrepresent their employee populations to avoid business laws and regulations, usually to save money. For example, a company may improperly classify a worker as a contractor to avoid paying unemployment insurance required for employees. Other common practices include paying employees under the table to avoid paying taxes, failing to pay overtime when it's due, and failing to register a business with the state to avoid paying taxes.
How does it harm the broader economy?
In addition to directly impacting employees and state revenue, the underground economy has a negative impact on law-abiding businesses. Saving money by breaking the law means underground economy companies have more to spend on other items, and they can charge less for services or products, giving them a competitive advantage, the EOLWD said.
What was the breakdown of money owed in 2013?
According to the EOLWD, money owed for violations last year included:
• $12.9 million to the Department of Unemployment Assistance for unemployment insurance contributions, and $236,738 for Fair Share Contribution health insurance payments;
• $1.3 million to the Department of Industrial Accidents;
• $729,000 to the Department of Revenue;
• $405,000 to the Attorney General's office; and
• $3,650 to the Department of Labor Standards.
What about previous years?
Last year's round of investigations was the fifth since the task force was launched in 2008. Since then, more than $55 million has been collected during investigative periods of varying lengths.
What has the task force planned for 2014?
The task force plans to continue its work by, among other goals:
• Improving the integration of the state's labor, licensing and tax laws;
• Beefing up revenue recovery efforts;
• Publicizing cases uncovered by the task force to serve as a deterrent; and
• Launching a research study to measure the frequency of violations.
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