Adding to the state's diminished revenue is the growing problem of employee misclassification, in which employers either knowingly or mistakenly classify employees as independent contractors and pay them under the table. By doing so, they avoid having to provide a range of benefits, and also avoid the payment of state and federal taxes. One estimate suggests the state of Maine is losing more than $40 million a year in tax revenues from misclassification, and a state task force is looking at ways to recoup the money.

Nowhere is the problem of employee misclassification more evident than in the construction industry. A 2005 study by Harvard University found that one in seven construction employers in Maine misclassified workers as independent contractors. And some say unscrupulous employers have only become more brazen and more common in the workplace, underbidding legitimate contractors who play by the rules and, in some cases, ripping off workers.

"I've worked since I was 13 years old. I've always worked. I've always paid my own bills and now I'm on assisted living," says Bruce Lord of Portland, a construction worker who says he was scammed by a contractor from Maine more than a year ago. "This guy owed me so much money. We lost - I was renting a house, I have two kids. I'm on assisted living now to this day - it wouldn't have happened if it wasn't for people like him."

Lord says he was hired by a Maine contractor more than a year ago to do a dry wall job in Pennsylvania. He and his friend, Ryan Jameson, were promised $22 an hour. They say they put in 120 hours in one week and never got a dime. Both are owed several thousand dollars. And both told their stories to a state task force on employee misclassification.

"It's not just me and Bruce that this is happening to," Jameson told the panel. "This is hundreds and hundreds of people that this happening to everyday. And people depend on this money. When somebody says "I'm going pay you this money and then they don't pay you, well, what are you supposed to do?"

One thing Lord and Jameson knew not to do was sign a release form provided by their boss that stated they had been paid for their work. John Leavitt, business manager for the New England Carpenters Union in Maine, says this illustrates the degree to which some contractors feel they can exploit their workers, who often don't have deep pockets to begin with.

Leavitt says they can't afford attorneys and are afraid to rat out employers when they get stiffed. What's especially frustrating, says Leavitt, is that his union has been trying to shine the light on this problem for more than a decade. "It's 2009. I first got involved in it in 1999. People were doing it years before me. But it's 2009 and we're still arguing what the definition of an employee is. Whether you're an independent contractor or if you're an employee, if you have a contract or you're legally bound as an employee, you should get paid and that's the end of it."

Leavitt wants to see increased penalties for those who break the law. Right now, he says, violators who do get caught often get only a slap on the wrist. Just two years ago, a report by the University of Maine's Bureau of Labor Education found that the state lost as much as $26 million in workers compensation premiums, and another $3 million in state income taxes from employers who failed to pay into the system.

It also found the the federal government was losing millions for social security payments. And it suggested increased auditing, more clearly defined penalties and adequately funded government enforcement as the best ways to ensure compliance with existing laws.

"One of the things that concerns me is what we perceive as a strong bias towards enforcement and maybe less of a bias towards education," says John O'Dea, the Executive Director of the Maine chapter of the Associated General Contractors of America. His group represents large and small contractors around the state.

He says regulators should give recently-passed legislation a chance to work before taking more punitive action. The new law sets up a 12-part test to determine who is an independent contractor and who is an employee, and O'Dea says it gives state enforcement agencies the beginning of a paper trail.

"The driving policy goal was to ensure that every person on a construction job site has workers comp insurance," O'Dea says. "And that's the first layer of the onion, but it's not difficult once you start to create the paper trail to believe that that will also require certain tax filings and so on and ensure the legitimacy of a much larger part of the construction industry work force."

But it's not just the construction industry that's at fault. Deputy Labor Commissioner Ned McCann says when it comes to misclassification of workers, scofflaws are found in all kinds of industries. McCann is part of the task force created by Gov. John Baldacci to figure out what the state can do.

McCann says one thing already identified is to get enforcement agencies to communicate with each other. "Having what happens in the employment tax division and Maine Revenue Services and the Workers Compensation Board - having all that information gathered together in a more organized and focused fashion allows us to act more effectively."

McCann says beefing up enforcement may also be necessary. The Maine Department of Labor only has a limited number of investigators to visit job sites and investigate complaints statewide. But with a projected $400 million state budget gap, the prospect of bringing on more staff is probably unlikely for the foreseeable future.