Report: Deadbeat Employers Hurting N.Y. Economy

Jan. 29, 2007
According to a new report, one in every five New York workers are not receiving workers' compensation insurance, because many employers are evading premiums amounting to as much as $500 million to $1 billion a year.

The report, which was issued by the Fiscal Policy Institute, estimates that between 500,000 and 1 million New York employees who should be covered by workers' compensation insurance are not.

The report claims that these numbers stem from several employers underreporting the size of their work force and misclassifying their employees as independent contractors to avoid paying payroll taxes and social insurance programs such as workers' compensation and unemployment insurance. Also, several employers have neglected to pay workers' compensation premiums at all, the report says.

According to the report, the state of workers' compensation in New York could be detrimental to New York's economic climate. If things continue in this direction, the report says, workers' compensation premium costs for all employers will increase and the costs of medical care for injured workers will shift to the injured workers themselves as well as taxpayers.

"It seems so perplexing that New York has such a high workers' compensation rate and such low benefits," James Parrott, chief economist of the Fiscal Policy Institute, told "The development of this issue has done a lot to taint the economic policy of New York."

Twenty Percent of Employers Are Not Paying Premiums

The research group, under Parrott's tutelage, collected payroll data from 2001 through 2003 for New York employers buying workers' compensation from the state insurance fund and/or private insurers as well total payroll data from self-insured employers.

When comparing the total amount of employee payroll employers reported to the New York State Labor Department and Tax Department to the total payroll reported for workers' compensation – $388.6 billion vs. $310.9 billion – Parrott found that 20 percent of employers weren't paying their premiums.

"If things continue to go the way they are, it will be hard to improve benefits for workers and premiums will be unsustainable for employers," Parrott said.

The report partly places the blame on New York state, as it "has allowed extensive non-compliance and the underground economy to proliferate." Continued lack of enforcement, according to the report, will only propel cheating companies to continue evading the law.

"Labor-Funded" Group Has an "Agenda"

Michael Moran, spokesman for the American Insurance Association, told that he has serious doubts that the report is accurate.

"This is a labor-funded group that seems to have an agenda," he said. "It would be senseless for insurance companies to not keep track of who pays and who doesn't."

The timing of the report is intended to inject the issue of non-compliance into the debate in Albany over reforming the workers' compensation system. Gov. Eliot Spitzer said reforms are one of the top priorities of his administration, and has pledged to help lower premiums and increase benefits.

Other States Pursue Workers' Comp Scofflaws

The Fiscal Policy Institute says that Florida, California, New Jersey and Delaware have aggressively pursued "flagrant" workers' comp premium payments. Florida closes down construction sites for non-compliance and California and New Jersey are seeking to curb the misclassification of workers as independent contractors, the report asserts.

According to Parrott, if New York state applies the same aggressive tactics to non-complying employers, there would be broader insurance coverage, which would lower premiums. Parrott also suggested that employers abiding by worker compensation requirements are more likely to instill better safety practices in the workplace.

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