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Louisiana is the only state in the nation that requires a first-offense warning letter to employers who misclassify employees as contractors, the Louisiana Legislative Auditor says.

The requirement hinders enforcement, according to a recent auditor’s report, potentially allowing employers to skirt their tax and unemployment insurance responsibilities and undercut competitors who follow the law.

In addition, Louisiana does not hold contractors responsible for ensuring that third-party labor brokers properly classify workers, which increases the risk of misclassification and makes it more difficult for the Louisiana Workforce Commission to deter the practice.

The United States Treasury Department estimated in 2013 that preventing worker misclassification would generate $8.32 billion in federal revenue over 10 years. The auditor’s office says misclassification cost Louisiana at least $9 million from 2014 through 2018.

“If LWC could impose penalties for first-time offenses, we estimated it could have assessed approximately $3.3 million in penalties for the 13,106 misclassified workers it identified during calendar years 2016 to 2018,” the Legislative Auditor says.

Louisiana lawmakers considered eliminating the warning-letter requirement and enhancing penalties in 2016, but the bill died on the House floor, the LWC says in its response to the report.

LWC has been ranked first or second in the nation for its employer audit program, says Ava Dejoie, who leads the commission on behalf of Gov. John Bel Edwards’ administration. She says a grant that funds the commission’s pursuit of misclassification offenses has been reduced by more than 10 percent in recent years, making it more difficult to retain qualified personnel.

Even with its funding and statutory restraints, there are ways for the LWC to strengthen enforcement, the auditor says, such as comparing information from other state agencies to its quarterly wage data. An analysis of the Louisiana Department of Health’s and the Department of Transportation and Development’s contractor payroll and time sheet data identified 383 employers that did not report employee wages to LWC for as many as 22,850 workers as required by law, thus potentially misclassifying workers, the report says.

Staff Writer

David Jacobs is a Baton Rouge-based award-winning journalist who has written about government, politics, business and culture in Louisiana for almost 15 years. He joined The Center Square in 2018.