Payroll fraud (also called worker misclassification and workplace fraud) is the illegal practice of designating an employee as a "1099 worker" or an independent contractor. Unscrupulous employers do this to avoid paying payroll taxes, unemployment tax, or workers’ compensation insurance and are therefore able to submit lower bids for projects, undercutting responsible contractors. Several states have already passed laws to penalize those who cheat workers and taxing agencies in this way, and two bills are currently being considered which would provide federal legislation to end this practice and that of wage theft. They are The Fair Playing Field Act, introduced by Senator Kerry and a number of co-sponsors and The Employee Misclassification Prevention Act.

Heading into the new year, the federal government is ramping up efforts to educate employees and employers about the harms caused by worker misclassification. It’s a problem we’ve documented extensively over the years on Construction Citizen.

Our readers know very well that worker misclassification happens when a business pretends its employees are “independent subcontractors” with the intent of avoiding payroll taxes and benefits like workers’ compensation insurance and – thanks to reduced labor costs – are able to submit lower bids for projects, undercutting law-abiding companies. Of course, there are many legitimate and legal uses of contract labor. The problem arises when businesses abuse the designation with the intent of skipping out on taxes and providing benefits for people being utilized as employees.

The Department of Labor this month launched a new webpage devoted to the topic. The site makes the case that worker misclassification negatively impacts everyone: Workers, employers, and all taxpayers who have to pick up the slack when unscrupulous employers shirk their responsibilities.   Read more » about Labor Department Launches New Web Page on Worker Misclassification

The following article is a guest piece by Jose Garza, Executive Director of Workers Defense Project:

Today, the middle class is out of reach for too many men and women working in the Texas construction industry.

That hasn’t always been the case.

After serving in the Pacific during World War II, my grandfather, Saul, returned to Texas in 1945 hopeful and optimistic about the future. He got his start working for a general contractor in San Antonio where he picked up the skills that would  lay the foundation for the life that he and his family hoped to build.

Eventually, through his hard work and good fortune, he was hired by the Texas Highway Department. There, he earned good wages and had access to benefits that allowed him to raise eight children and put several of them through college.    Read more » about Garza: Building a Better Texas, Together

During a nationally televised report on Fox News Channel, a prominent Texas construction executive said President-elect Donald Trump has a chance to be both tough and smart on border security and immigration.

Stan Marek, President and CEO of the Marek Family of Companies, said the President-elect needs to enact immigration reform that identifies and taxes those who are illegally in the country. But that does not meant Trump would be somehow softening his position on border security, Marek said.

Instead, Marek insists that the best border security happens at the job site.

That increased security would be accomplished by issuing tamper-proof ID’s only to workers who are authorized to be in the United States.   Read more » about Texas Construction CEO on Fox News Channel: Trump Can be Both Smart and Tough on Immigration

A 98-page report produced by Stockton University’s William J. Hughes Center for Public Policy last June presents a detailed look into the “underground construction industry” in New Jersey.  Titled The Underground Construction Economy in New Jersey, the report lists specific ways that “off-the-books labor,” also called worker misclassification, damages the construction industry, cheats the misclassified workers, and costs the state government and ultimately local taxpayers millions of dollars each year.  Best practices for dealing with the illegal practice are identified in the report, and the report concludes with 15 policy recommendations for the State.  From page 12 of the report:

“Based on the review of best practices in other states, we outline 15 policy recommendations for the State of New Jersey (page 90). Recommendations #1 through #4 are related to the structure and functions of state government entities that have duties related to employee misclassification.   Read more » about Research Report: The Underground Construction Economy in New Jersey

As the debate about illegal immigration rages at the national level thanks to the vitriolic rhetoric of Republican presidential nominee Donald Trump, it's high time for all of us to take a look at how the broken system is negatively affecting people right here in our own community.

My entire career has been spent in construction, so I've been perfectly positioned to see how this mess has evolved over the past few decades. Rather than rehash arguments I've made previously - arguments I will continue to make in the future - I'd like to share with you the story of a young woman whose experience is all too common here in Southeast Texas.    Read more » about What Immigration Reality Looks Like for Workers

An agreement between the United States Department of Labor (DOL) and North Carolina’s Industrial Commission was signed last week in an effort to coordinate resources to crack down on worker misclassification in the state.  An article in the News and Observer, a regional publication serving the North Carolina Triangle, offered the following details:

“The agreement allows federal officials to share their data and knowledge with North Carolina officials, much as they have with 32 other states working to combat misclassification.  Federal officials have agreed to join some of the state’s efforts to investigate certain employers who have been flagged as likely offenders.   Read more » about North Carolina Agrees to Work with the US Department of Labor to Curtail Misclassification

With each passing day, state and federal governments are getting more serious about rooting out and eliminating worker misclassification, sometimes known as payroll fraud. But much more must be done to end what has been called a "cancer...eating at the heart of our industry."

Regular readers of Construction Citizen know that worker misclassification happens when a company pretends its employees are “independent subcontractors” with the intent of skirting payroll taxes and benefits like workers’ compensation insurance and – because of their reduced labor costs – are able to submit lower bids for projects, undercutting ethical contractors.

In Professional Roofing Magazine earlier this year, attorney William E. Burnett gave contractors an in-depth look at the problem from all angles.    Read more » about Professional Roofing Magazine Shines Spotlight on Worker Misclassification

Hermen Valdez realized that he wasn’t going to be able to afford to get back to Texas. His oldest son, a Houston native, was set to graduate from Baylor, and Valdez needed a plane ticket.

But he also needed to make payroll that month.

Valdez, who had moved away in the late 1980s from the recession in Houston to New England in search of more steady construction work, was an independent contractor, responsible for the salaries and insurance payments and taxes on a crew of about 20 general and skilled laborers.

He started working in the construction industry in high school. Before that, since he was 10, he had been helping his parents as a manual laborer. He grew up a few hundred miles southeast of Seattle, where his parents settled after emigrating from Mexico.    Read more » about An Industry in Crisis: How Construction Career Collaborative is Trying To Do Right By Its Workers

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