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NY cracks down on building trade's "cash" economy

NEW YORK (Reuters) - New York state's construction companies will be subject to new criminal and civil penalties if they misclassify employees as contractors to underpay them or dodge taxes, Governor David Paterson said on Tuesday.

In a statement issued after the bill's signing, Paterson said that studies found that as many as 15 percent of the state's construction workers are paid off-the-books or wrongly treated as independent contractors.

This "terrible practice" deprives the cash-poor state of badly needed tax revenue and puts construction firms that follow the laws at a disadvantage because their costs are higher when they bid on projects, he said.

Workers lose out on medical coverage and unemployment benefits when their employers wrongly classify them.

Contractors who intentionally break the new law could be hit with civil penalties of up to $2,500 for a first offense and be charged with a misdemeanor punishable by a prison sentence as long as 30 days or a maximum fine of $25,000.

A budget spokeswoman was not immediately available to estimate how much tax revenue the state loses.

New York's Fiscal Policy Institute, in a 2007 report, said: "Conservative estimates suggest that between 500,000 and a million New York workers who should be covered by workers' compensation are not."

The non-partisan think tank said that contractors were failing to pay about $500 million to $1 billion in premiums to the workers compensation system each year.

(Reporting by Joan Gralla; Editing by Dan Grebler)