Council on the Underground Economy
Since its creation, CUE has grown to 17 agencies. The CUE has also collected more than $76 million from unlawful businesses by enforcing labor, licensing, and tax laws. CUE members share information and come together with a common purpose: to bring businesses and individuals into compliance with applicable state laws. The CUE will continue to maintain a toll-free referral line, 1-877-96-LABOR (1-877-965-2267) and online complaint system for businesses and individuals seeking information or to lodge complaints about suspected cases of fraud and misclassification.
Why tackle the underground economy? The underground economy and worker misclassification is not a new phenomenon or one which exists just in Massachusetts. Most businesses are law-abiding and responsible, treat their employees fairly, and stand behind the goods and services they sell. These legitimate businesses often wind up paying higher costs when other businesses evade the law. Businesses in the underground economy pay workers sub-minimum wage or "off the books", illegally misclassifying their employees to avoid paying for unemployment or workers' compensation insurance and refusing to withhold taxes. When the underground economy is allowed to flourish, workers are denied basic workplace rights and protections, legitimate businesses find they can't compete. Consumers are subject to unregulated goods and unlicensed services and Massachusetts is cheated out of revenue that could otherwise fund worthy programs and services.
The CUE has a Director and a full-time Program Coordinator. The CUE coordinates the efforts of the state agencies to investigate unlawful business practices. The CUE is working to level the playing field to increase fair business competition.
Current member agencies include:
- Alcoholic Beverages Control Commission (ABCC)
- Attorney General’s Fair Labor Division (AGO-FLD)
- Department of Industrial Accidents (DIA)
- Department of Labor Standards (DLS)
- Department of Public Safety (DPS)
- Department of Revenue (DOR)
- Department of Unemployment Assistance (DUA)
- Division of Banks (DOB)
- Division of Capital Asset Management and Maintenance (DCAMM)
- Division of Professional Licensure (DPL)
- Insurance Fraud Bureau (IFB)
- Massachusetts Office of Refugees and Immigrants (MORI)
- Occupational Safety and Health Administration (OSHA)
- Office of Small Business and Entrepreneurship (OSBE)
- U.S. Department of Labor (USDOL)
CUE members have a strong working relationship with many state and federal agencies. Partnering together maximizes our ability to fight the underground economy.
What is the underground economy?
"Underground economy" is a term that refers to individuals and businesses that hide their activities to avoid their responsibilities related to wages, taxes, insurance, licensing, safety, and other regulatory requirements.
Examples of unlawful acts can include but are not limited to:
- Paying wages in cash
- Not paying overtime
- Paying sub-minimum wages
- Underreporting employees or income
- Classifying employees as independent contractors (Misclassification of workers)
- Forcing employees to set up shell subcontracting entities
- Running a part of their normal business activities 'off-the-books'
- Not reporting the value of goods and services provided in exchange for other goods and services
- Avoiding their tax and monetary obligations by not registering their business or obtaining the proper licenses and insurance policies
- Tax evasion
Reasons businesses engage in illegal activities
It all goes back to money. When a business participates in the underground economy, it is saving money. For example, businesses that avoid paying for insurance, taxes, licenses, benefits, equipment, and safety conditions are acting unlawfully. By doing so they gain an unfair pricing advantage over their competitors.
Unlawful businesses harm workers
Working for a business that doesn't follow labor, licensing, tax, and insurance laws can be harmful to employees. This could cause working conditions to be unsafe. Also, workers may not be paid minimum wage. The employer is unlikely to be paying into Social Security and Medicare, meaning a worker may not be eligible for those benefits. This is exploitation of workers. You can take actions against these employers.
If you think your employer is avoiding these responsibilities, call the CUE tip line at: 877-96-LABOR (877-965-2267). All CUE tips are anonymous.
Concerns for law-abiding businesses and employees
The underground economy harms everyone. Law-abiding businesses, ratepayers, and taxpayers bankroll the costs of the businesses that cut corners on their legal obligations. Under-insured businesses can cause higher workers’ compensation insurance premiums for everyone. Businesses that don't pay unemployment insurance create liabilities and higher insurance premiums. Paying wages in cash allows businesses to avoid paying taxes. These taxes could be used to pay for repairs to roads and bridges, transportation services, education, and other local services.
Consumers may be contributing to the underground economy through their buying choices. Using an unlicensed or uninsured business or contractor to save money may cost you in the long run. Licensing ensures a higher level of skill and knowledge which protects the consumer.
Employee misclassification happens when a company classifies a worker as an independent contractor when by law the worker is an employee. One of the differences between an employee versus an independent contractor is how these workers are paid. A “W-2 employee” is on an employer payroll, having payroll deductions and tax contributions made on his/her behalf by the employer, where an independent contractor handles his/her own tax contributions.
Independent contractors serve a vital role to many business operations. Often a company will look to use independent contractors when a short-term project arises that requires specialized skills or knowledge. Other companies rely on independent contractors as part of their business model to provide services such as consulting and training. The use of these services can save a company a great deal in reduced taxes and insurance costs.
In July of 2004, Massachusetts passed the Independent Contractor Law [Chapter 193 of the Acts of 2004]. This narrowed the standard for determining independent contractor status. The Massachusetts law created a presumption that a work arrangement is an employer-employee relationship unless the party receiving the services can overcome three legal presumptions of employment:
- The worker must be free from the presumed employer's control and direction in performing the service, both under a contract and in course of business
- The service provided by the worker must be outside the employer's usual course of business
- The worker must engaged in an independent service performed
For more information about independent contractors, please see MGL c. 149, section 148B.