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.

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

The Department of Labor has issued their enforcement rules for joint employment status of contract employees as part of their enhanced Fair Labor Standards Act (FSLA) enforcement in industries where misclassification has become rampant as companies move to avoid paying overtime, benefits and unemployment insurance.

The rules define both “Horizontal and Vertical” joint employment conditions, and these definitions are being used as guidelines for legal cases that are in the courts today. The Administrator’s Interpretation No.2016-1 spells out the requirements for the aggregation of hours, definitions and applicability for enforcement.

Anyone in the construction industry in this low bid and worker shortage environment had better take a really close look at the rules in this interpretation, especially if you are using third parties for staffing on your projects.    Read more » about Joint Employer Enforcement

The issue of worker misclassification promises to loom large once again during the next session of the Texas Legislature – and not just as it relates to the construction industry.

Misclassification, as Construction Citizen readers know all too well, is when businesses pretend their labor is being done on a subcontracting basis when by law the people doing the work should be compensated as employees.

There are, of course, many legitimate uses of contract labor but the problem arises when some companies abuse the subcontractor designation specifically to avoid payroll taxes, workers’ compensation insurance, and other benefits that have traditionally been part of an employer-employee relationship. In construction, businesses that misclassify their workers can often underbid their competitors by as much as roughly 30 percent.

During a hearing of the Texas House Business and Industry Committee this past week, lawmakers appeared divided on whether ride sharing companies like Uber and Lyft should be able to designate their drivers as independent subcontractors or employees.    Read more » about Worker Misclassification Debate Starts Anew at the Texas Capitol

Business leaders in Houston seem well-positioned to set the tone for how the rest of the nation addresses workforce challenges, experts agree. During a town hall-style event hosted by the Greater Houston Partnership this past week, health care leaders, construction executives and others discussed ways the private sector is taking the lead to ensure that a quality workforce can be cultivated and sustained for decades to come.

“Industry is truly leading the initiative,” said Peter Beard, Senior Vice President of Regional Workforce Development at the GHP. He opened a panel discussion by giving specific praise to the construction and petrochemical sectors and said there is a belief that “we share, fundamentally, a workforce.” That’s why addressing the needs of employers and employees will “take a collective effort,” Beard said.    Read more » about Houston’s Leadership on Workforce Can be a Model for the Nation