Payroll Data Services Blog

Wisconsin Cracks Down on Payroll Fraud Epidemic

Last month marked the end of the 2018 tax season, but it also marked the beginning of new statewide initiative in Wisconsin. On tax day, Governor Evers announced the launch of a task force dedicated to fighting payroll fraud throughout the state. And while there’s more than one type of payroll fraud, this task force is targeting a specific widespread fraud epidemic — the misclassification of workers by employers.

To make sure you’re up to speed, here’s the rundown on the misclassification of workers, the related payroll fraud epidemic, and Wisconsin’s joint enforcement task force that’s dedicated to tackling it.

What’s the issue?

In audits from 2016 to 2019, the state Department of Workforce Development (DWD) uncovered 8,677 misclassified workers in Wisconsin. What does that mean, exactly? A large number of businesses are classifying employees as independent contractors to avoid unemployment insurance (UI) taxes, workers compensation premiums, and employee benefits. In some cases, employers are paying workers under the table to keep them off their records completely, which is another way of avoiding taxes.

As a result of this misclassification — or no classification at all — the DWD recouped roughly $1.5 million in UI taxes and penalties after the audits. Not only is this misclassification and payroll fraud an avoidance of state obligations, but it also creates an unfair business climate and scams hard-working employees. Since the offending businesses are cutting costs by avoiding taxes, they’re able to charge as much as 30% less for their services, which puts them at an unfair competitive advantage. On top of that, by misclassifying workers as independent contractors, they’re depriving them of the security that the employer-employee relationship provides.

How is Wisconsin’s task force addressing the issue?

The joint enforcement task force will coordinate efforts between the DWD, Department of Revenue (DOR) and the UI divisions within the DWD. They’ll study and investigate worker misclassification matters and report their accomplishments, recommendations to Governor Evers on or before March of each year. By combining forces and coordinating these state-level efforts, the task force aims to combat payroll fraud and level the playing field — for business owners and workers alike.

As an employer, make sure you’re playing by the rules.

If you’re an employer, you may be wondering if you’re correctly classifying employees, especially if you’re using independent contractors. To double-check, you can refer to the DWD’s Worker Classification website, which provides a step-by-step process for classifying workers. By using this classification process, you can determine your legal obligations, and ensure you won’t get stuck paying the consequences for erroneously misclassifying your workers.

Simplify the payroll reporting process (and stay up-to-date).

If you’re looking to simplify the reporting process for employees and independent contractors, check out our payroll solution. With Orbit Payroll, you can easily set up workers as a W2 employee or a 1099 contractor. If you’re already using Orbit Payroll and have questions on how to set up employees and contractors in the system, don’t hesitate to contact your client service representative (CSR).

And as always, we’ll keep you posted on the latest payroll happenings as they come in. To make sure you don’t miss out on important updates, follow us on LinkedIn and Facebook!

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