Imagine that you worked for the same company for three years — and then got laid off. You applied for unemployment, but the state agency turned you down. Its letter says that as an "independent contractor," you aren't covered.
Losing your job during a recession was not a complete surprise. Times are tough. But you thought you would have help from unemployment while you looked for a new job.
As frustrating as this story sounds, it is not uncommon. Studies show that thousands of Kentucky workers are treated incorrectly by employers as independent contractors — and lose important benefits as a result.
Intended or not, when companies wrongly treat their workers as independent contractors, they also avoid paying for benefits like sick days, holiday pay, overtime, workers' compensation and unemployment.
And one more thing: They don't deduct and or pay the worker's state or federal taxes. When tax day arrives, independent contractors must pay their own income taxes. They must pay the employer's share of Social Security and Medicare, too.
Workers are not the only ones hurt by such misclassification. Avoidance of taxes and other costs by non-compliant employers gives them an advantage over employers who play by the rules — an estimated 30 percent in payroll.
It all adds up. And it adds up to millions in lost revenue. In a recent study, researchers found that misclassification in construction alone costs the commonwealth an estimated $6.13 million a year in lost income tax revenue.
And that's just one industry. Nationwide, the IRS says about $54 billion in tax revenues are lost each year.
That's where the Governor's Blue Ribbon Commission on Tax Reform, which met Tuesday in Lexington, comes in.
Kentucky has laws on the books for proper classification of workers. Three state agencies are charged with enforcing them: revenue, labor and workforce development.
The General Assembly considered language to encourage the agencies to work together by sharing information. The language didn't pass.
Twenty-three Kentuckians on the tax reform commission face the challenge of making our state revenue system fair, competitive, simple and adequate — and better able to grow with the economy.
To leave comments for the commission, go to ltgovernor.ky.gov/taxreform/Pages/comments.aspx.