Iowa lawmakers are cracking down on employers who misclassify workers as independent contractors to avoid payroll taxes and benefits.
The move comes amid rising demand for contract workers for recovery efforts following severe flooding across the state in recent months.
This week, Gov. Chet Culver formed a taskforce to gauge the extent of employee misclassification and report back with recommendations within 60 days.
"Employers who contribute to the local economy should not have to compete with those employers who choose to break the law by knowingly misclassifying their employees," Culver said in a statement.
The crackdown is backed by local labor groups, who say the practice cheats employees out of millions of dollars a year in benefits.
"Employers intentionally misclassifying workers illegally funnel tax dollars into their own pockets, forcing the majority of Iowans to pick up the tab," Teamsters President Jim Hoffa said in a statement.
A similar initiative in New York found about 10 percent of audited employers had misclassified workers, costing the state over $550 million in tax revenue from the construction industry alone.