Mislabeling construction workers as contractors draws federal scrutiny Regulators team up to fight practice of employers labeling construction workers as independent contractors.
June 13, 2014
Federal regulators are covering all the bases in a push to cut down on the widespread practice of construction companies’ misclassifying employees as independent contractors, depriving them of overtime and other employment benefits.
The U.S. Department of Labor’s wage and hour division is teaming with state licensing agencies so they know when license holders run afoul of wage and hour laws; meeting with construction companies and worker rights groups to develop new strategies to address the problem; and planning to add 300 more wage and hour investigators next year, including 52 in the Southwest, a local administrator said.
“It’s really an alarming trend we’re seeing,” said Betty Campbell, the Labor Department’s deputy regional administrator for wage and hour in Dallas.
She said the pervasive practice of misclassifying employees as independent contractors deprives them of the right to earn minimum wage and overtime as well as protection offered by such federal laws as the Family and Medical Leave Act and Americans with Disabilities Act.
Misclassified workers are also forced to pay the employer portion of the Social Security taxes, she added. And if they’re injured at work, they have no workers’ compensation. Or if they lose their job, they’re denied unemployment benefits.
The initiative is coming at a time when the Labor Department estimates that one in every 13 workers in the Texas is in the construction industry.
A study last year by the Workers Defense Project and the University of Texas found that more than 40 percent of construction workers in Texas are either classified as independent contractors or paid under the table. The study, based on nearly 1,200 interviews with construction workers, estimated that payroll fraud alone represents an estimated $54.5 million loss in unemployment insurance tax revenue.
Campbell said it’s not just workers who are hurt by misclassification. Employers who play by the rules can’t compete when some employers don’t pay taxes or overtime.
Stan Marek, president and CEO of the Marek Family of Companies, was glad to hear the Labor Department is turning a spotlight on a problem he’s been trying to highlight for years.
“I’m a very unpopular guy in my industry,” said Marek, who was on a conference call recently with Campbell and other Labor Department officials to discuss misclassification.
“We have to find a way to get our kids into the trades,” Marek said, “and the only way we can do that is an hourly wage and a career path.”
As more construction companies get away with misclassification, the more pressure there is to cheat, said Chuck Gremillion, executive director of C3-Construction Career Collaborative, a group of contractors and owners seeking to build a more secure and growing workforce for the commercial construction industry.
“It’s kind of a vicious cycle,” he said.
Gremillion estimates that contractors who misclassify employees operate with 30 to 35 percent lower labor costs than the companies that abide by the minimum wage, overtime, Social Security, unemployment insurance and other employment laws.
Lack of enforcement
It’s not that hard to get away with it, he said, because of the lack of enforcement. That, in turn, makes the construction industry an undesirable place in which to make a career.
“Who wants to join an industry in which workers are paid unfairly?” he asked. “Construction used to be a great way to earn a middle-class income, but not so much anymore.”
The problem is exacerbated by the push among high school educators to get students to enroll in college, he said. The dismantling of vocational educational programs has reduced the number of young people who are interested in a construction career.
To fill the jobs, many construction companies have turned to undocumented workers who are not likely to complain of wage and hour violations, he said.
To encourage better compliance with employment laws, the agency is seeking liquidated damages, which double the amount of back pay that an employer would have to pay, Campbell said.
The agency is also looking closer at the relationship between the general contractor and the subcontractors it hires to determine if there is a joint- employment arrangement. In those circumstances, the agency can seek back pay from the general contractor that hired the subcontractors.
“We want them to know they have a responsibility,” she said.
Efforts won’t stop there, Campbell added. She said the agency intends to pressure the owner of the property who hired the general contractor in the first place to make sure the workers are paid properly.
Extra dose of publicity
The agency is already doing that in the news releases it issues after back pay has been awarded, she said. When the owner is a well-known company or there is a joint-employer relationship, the agency is pointing that out.
While there is no way to determine if the extra dose of publicity is effective, Campbell said the agency plans to continue it.
Gremillion would like to see federal regulators show up at construction work sites and examine the payrolls. On-the-spot audits to see if taxes and other deductions are getting taken out of paychecks would draw attention to the problem, he said, speculating that it would stop some companies that have taken to calling their employees “entrepreneurs.”