Construction Industry, We Have an Issue

The following is excerpted from a letter written by Stan Marek, CEO of the Marek Family of Companies in Houston, in response to the Wall Street Journal article “U.S. Hits Builders With Pay Probe” mentioned in one of our last entries about the government’s audit of home builders regarding their pay practices.  It is an issue that is growing more critical as the economy continues to stutter and the recovery remains sluggish.  This letter gives a first hand view of the issue in Texas and asks for a solution that is responsible, sensible and one that will lead to a sustainable construction workforce for the future.

Here in Texas, we have the nation’s highest number of “undocumented” working in the construction industry and many are being misclassified as independent contractors with no taxes being withheld or paid on their behalf.  I’ve seen our own hourly labor force in both residential and commercial decline each year as our company loses more and more business to this kind of arrangement.  And with the downturn in the residential industry, these “independent contractors”, many of whom are “undocumented”, have found their way into the commercial market.  Because of that shift, companies like mine, with a 70 year tradition of good hourly pay, benefits, a career path, etc., are no longer able to compete.  (How can we, with pay by the piece, no payroll taxes, no accident insurance, and no overtime?)  The result is that we are laying workers off at an alarming rate and they, in order to feed their families, are forced to go into the same flawed system that just cost them their jobs at companies like ours.

Unfortunately, many of my fellow specialty subcontractors, rather than fight for a higher standard for their workforce, have chosen to join the bandwagon and are now hiring “independent contractors” to do their work.  Their position is, “Why would anyone want to have employees, fill out I-9’s, worry about ICE audits, pay payroll taxes (our unemployment taxes in Texas are going through the roof) and provide workers’ compensation insurance, when you just have to hire that “independent contractor” who will take care of everything?”

Yes, the unions are upset, by why aren’t average citizens upset?  Why should companies be allowed to misclassify employees as “independent contractors” in order to take advantage of undocumented workers, get a free ride, and not pay the same taxes the rest of us pay?  Home builders and General Contractors will cry foul when you attack the independent contractor concept.  My question is why won’t they step up and make sure that their independent contractors are true subcontractors that withhold and pay payroll taxes on their workers?

Throughout your whole article, (and I can’t blame you since it’s a different subject), you never talk about how many workers in the industry are “undocumented”.  I attached a study done in 2006 by Patrick Jankowski, head of research with the Greater Houston Partnership of which I am a board member.  Then, we had an estimated 400,000 undocumented in our community.  Today with the anti-immigration laws in Georgia, Alabama, etc., I’m sure we have even more because we have the jobs that attract them.  As you can see from the study, an estimated one in ten jobs is held by someone “undocumented”, many working under someone else’s social security card or a counterfeit one, most working in the underground economy for cash.  And that describes our industry today.  All owners, general contractors, and builders should mandate that all of their subcontractors properly classify their employees as employees, pay them by the hour, withhold and pay payroll taxes, have some kind of accident insurance and pay overtime pay for working over 40 hours a week.  In other words, follow the same laws as the rest of us.

I am not an advocate of “shipping the undocumented all back”.  That’s not practical.  But I am an advocate of sensible reform which would be identifying who is here and making them and their employers pay taxes.  I see no reason why any “undocumented” worker would ever be allowed to be classified as an independent contractor even under our current IRS code.

One other factor to take into consideration with this misclassification problem is that it makes it impossible for our 18-year-olds graduating or dropping out of high school to enter a skilled trade that should provide them a career and a good living.  After all, why would they enter a career where employers often  pay in cash, withhold and pay no taxes on their behalf, and provide no benefits or workers’ compensation coverage?

I’m really concerned about how we are going to attract and keep young men and women employed in an industry that finds low bid and low cost more important than the building of a quality, sustainable workforce.

This is about a way of life in America that made this nation great.  Workers built this nation and made it what it is.  And I don’t think doing away with the traditional model of employer-employee relationship is the solution for our future!