New UMass Amherst Labor Center Study Finds Nearly 10% of Rhode Island Employers Misclassify Workers, Costing Taxpayers Tens of Millions of Dollars

AMHERST, Mass. – A new study released today by the University of Massachusetts Amherst Labor Center reveals that nearly 1-in-10 Rhode Island employers misclassified employees as independent contractors between 2016 and 2021, affecting an estimated 19,359 workers in the state in 2019 and costing taxpayers at least $25.1 million. Illegal misclassification allows firms to evade taxes while denying workers their legal rights to, among other things, unemployment insurance benefits, workers’ compensation insurance and overtime pay.

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The study, which was co-produced by the Institute for Construction Economics Research (ICERES) and conducted by Tom Juravich, professor of labor studies and sociology at UMass Amherst, and Russell Ormiston, associate professor of business and economics at Allegheny College and president of the ICERES, relied on extensive data provided by the Rhode Island Department of Labor and Training.

“This research builds on the work we did in Massachusetts and shows that rampant worker misclassification and employer tax fraud is a problem across New England,” says Juravich.

Worker misclassification occurs in every industry of the Rhode Island economy, but is especially rampant among residential construction, janitorial services, landscapers and certain types of construction contractors, such as painting and finish carpentry.

“The illegal misclassification of workers as independent contractors in residential construction has created a hothouse for wage theft,” Juravich says.

Worker misclassification is a form of tax evasion that denies workers their legal rights, allows unscrupulous employers to undermine the competitive position of law-abiding businesses, and defrauds taxpayers. While projections of the “underground economy” are complicated by incomplete data, the authors estimate that worker misclassification cost Rhode Island taxpayers between $25.1-$54.4 million in 2019.

“Worker misclassification sounds like a benign technical issue, but it produces real victims and real consequences,” Ormiston says.

Payroll fraud is not limited to worker misclassification, as the study also highlights high-profile cases of wage theft in Rhode Island. The authors contend that wage theft will largely continue unabated until state law provides sufficient deterrent against those who refuse to pay workers fully and on time.

“It speaks to an incredible inequity that it is a felony if an employee steals $100 from a cash register in Rhode Island, but a misdemeanor if the employer steals $10,000 from their workers in the form of unpaid wages,” Ormiston argues.

The complete report, “Worker Misclassification and Wage Theft” – published as a part of the UMass Amherst Labor Center Worker Paper Series – is available online now.