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.

There’s almost nothing partisan or ideological about trying to stop companies from cheating taxpayers and their workers, which is exactly what happens when some firms misclassify their employees. As our readers know, worker misclassification happens when a company pretends its employees are subcontractors with the intent of avoiding payroll taxes and benefits like health insurance. Unions call it “payroll fraud.” Many of us just call it cheating, plain and simple.

The fact that this is a bipartisan issue became extra clear this past week following our report on new efforts in the Texas Legislature to try to rein in the practice, which has rightly been called “a scourge” and “a cancer” in the construction industry. It happens in other industries as well but it is especially rampant in construction.

Previous legislative attempts to deal with this in Texas have had mixed success. Now, a new bill has been filed in the Texas House.    Read more » about Conservatives and Liberals Alike Embrace Efforts to Crack Down on Worker Misclassification in Texas

Far too often, construction companies cheat taxpayers and their workers by pretending their employees are independent subcontractors when, by law, they should be paid as employees. It’s a practice known as worker misclassification. Some ethical contractors have called it a “cancer that is eating at the heart of our industry.”

If a person is paid as a subcontractor, that individual is on the hook for payroll taxes and benefits like health insurance. When they’re injured, uninsured workers are often dropped off at county hospitals and the rest of us end up paying more in health costs and local property taxes.

In Construction Citizen’s Special Report, “Thrown Away People,” our team outlined many of the problems presented to society by the degradation of the employer – employee relationship. The McClatchy Newspaper chain this year followed up with a powerful series called “Contract to Cheat,” which took another in-depth look at the problem.    Read more » about Bill Filed to Crack Down on Worker Misclassification in Texas Construction Industry

As is happening in Texas and other states, lawmakers in North Carolina are now finally taking a look at what they should do to crack down on the epidemic levels of worker misclassification in the construction industry. Time Warner Cable News in Raleigh reports:

It comes on the heels of an investigative series in the News and Observer and its affiliated newspapers, highlighting the illegal practice of classifying employees as independent contractors in order to avoid paying taxes and other benefits. Read more » about Spurred by Media Coverage, North Carolina Lawmakers Zero In on Worker Misclassification

The federal government is getting more serious all the time about cracking down on businesses that pretend their employees are subcontractors when, by law, they should be paid as employees.  That was part of the message of labor law attorney Daniel Ramirez as he spoke to about a hundred representatives of various businesses at a labor law conference in the Dallas area hosted by
K&S Insurance Agency.

Ramirez, who also spoke in great detail about workplace issues like sexual harassment and the realities of the Affordable Care Act, said that his main concern for employers about worker misclassification is that companies can quickly find themselves in court facing class-action lawsuits.

“This is one of the hottest litigated issues,” Ramirez said, in large part because some workers will find out they should have been paid as employees and therefore should have received overtime pay.   Read more » about Noted Labor Law Attorney Warns Employers Against Worker Misclassification

In a September 2014 study entitled Sinking Underground: The Growing Informal Economy in California Construction, misclassification of more than 39,800 construction workers is a key reason that the underground economy in construction is contributing to the low wages, difficulty in recruiting qualified craft workers and loss of wages and taxes in the State of California.

According to the study, released by the Economic Roundtable, a non profit research organization based in Los Angeles, in 2011 more than 143,900 construction jobs in the state were “informal” – code for off the books, misclassified as independent contractors or unreported by employers.

The study looked at wages and construction jobs from 1972 to 2012 and found that the number of construction workers that were unreported or misclassified increased by 400% during that period.   Read more » about New Misclassification Study Shows Impact in California

On Monday, October 6th, the Austin Community College Board of Trustees will consider a resolution addressing wages and working conditions on future construction projects included as part of a combined $386 million bond package. Bond packages for new construction typically enjoy broad and strong support from our industry, but the Austin AGC is troubled by certain provisions that will impact the day-to-day operations of companies performing the work.

What’s even more problematic is that the resolution appears to have been crafted without input from a broad range of the local construction community. This is especially puzzling when you consider that the owner in this case has the word “community” as part its official name. To be fair, ACC Trustees have a priority focus on local education, not construction, issues.    Read more » about Austin Community College Proposes New Construction Requirements, Fails to Consult Contractors

There is growing anger across the nation about the about the cancer of worker misclassification in the construction industry.  Why are more and more political leaders, thought leaders, and others calling it a “scam” and saying that something needs to be done quickly to deal with these cheaters?

Well, as Supreme Court Justice Louis Brandeis famously intoned: “Sunlight is the best disinfectant.”  That’s the way most people know the quote.  The entire quote is this: “Publicity is justly commended as a remedy for social and industrial diseases.  Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

The steady attention Construction Citizen has given this issue has helped inspire media outlets like the Dallas Morning News to call for a crackdown.   Read more » about More Thought Leaders Call for Cracking Down on Worker Misclassification

The work we do at Construction Citizen to advance a socially responsible, sustainable and value added construction industry isn't just being noticed by those in the industry itself.  Others, including professional services firms, have started to take note and some even are taking action.

I recently sat down with Tony Fierro, President of K & S Insurance Agency in Rockwall, Texas, to talk about why he's made the decision to “join the movement,” as he put it.  Until Fierro made his commitment, all of our great sponsors had been contractors.  Since K & S Insurance is the first non-contractor to join, Fierro felt it was important to explain why he made the decision and encourage others to do the same.   Read more » about K & S Insurance Joins Construction Citizen [VIDEO]

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