The following was originally published in the September issues of Construction News, a monthly industry periodical in the four major metropolitan areas of Texas. It was written by Stan Marek, CEO of the Marek Family of Companies in Houston. As stated in Construction News, “Like a number of others, his company struggles to find work despite a strong Texas economy. He believes that a broken immigration system that is fueling unscrupulous business practices in the construction industry is at least one of the culprits.”
Texas has always carried the distinction of being one of the best places to do business in the entire USA. That’s great for those of us here but even better for those commercial contractors who want to come here. The fact that we have, within our borders, several hundred thousand undocumented workers bodes well for many contractors who want to come into the state and have an instant, but not necessarily legal, labor force.
Legitimate Texas contractors have fought the wars for the past several years trying to comply with complicated employment and immigration laws. Through self-audits of I-9s, implementation of E-Verify, ICE audits, no-match letters, and a myriad of other actions, they have purged their payrolls of undocumented workers. Because of this, thousands of trained, quality workers who are not “legal” have been pushed into this available labor pool – many going into the “underground” economy and being misclassified as “independent contractors” rather than employees.
These workers, who were once paid hourly and paying their taxes, now find themselves being called “independent contractors” by their new employers. With that designation all payroll taxes are gone. Gone too is minimum wage and overtime pay for work over 40 hours, plus any kind of insurance to help if they are injured on the job.
These employers are able to work them as “independent subcontractors” with little chance of getting discovered. ICE won’t check them since there are no I-9’s to examine. DOL’s Wage and Hour won’t investigate unless there’s an employee complaint (little chance of that happening). And, the IRS will seldom investigate to verify that the relationship is truly “independent” and not actually employer/employee. So the system just goes on.
This is truly the “low cost” way of delivering a product. But what is the real cost? Those payroll taxes not being paid would help fund our Social Security and Medicare. The unpaid unemployment tax replenishes our empty state unemployment fund. And the IRS loses billions of dollars in withholding taxes that might actually help reduce our federal deficit. And when there is an accident on the job, our emergency rooms are ready to care for the injured worker, and the rest of us get to pay for it. Is this really smart?
But the real tragedy is what happens to the legal workers and employers who have to compete against this “independent contractor” system. Companies like ours have to compete with the costs we have in place – a good hourly wage, payroll taxes, benefits and insurance. The truth is that many companies like ours can’t compete – so the obvious option is to lower wages and eliminate benefits and insurance – in other words, join them. For companies like ours, it’s distasteful and unthinkable. For others, it’s a matter of survival, and they do.
Yes, Texas is the land of opportunity. Today we see workers flocking into Texas because we have jobs. Many of the undocumented have left states like Arizona, Georgia, and others because of tough anti-immigrant laws.
A workable solution would be to identify undocumented workers who are in the United States by offering conditional legal work status as long as they work for an employer who pays by the hour, pays payroll taxes, and offers accident insurance if they get hurt. Of course, the workers would need to consent to an extensive background check, possibly pay a fine, and be able to be verified through the Department of Homeland Security E-Verification system.
Bottom-line, we have to eliminate the jobs that are available to them in this “underground economy.” We have to get tough on companies who misclassify their workers to gain an unfair competitive advantage in the marketplace. We have to eliminate this ability for employers and workers to operate free from enforcement. When we end the practice of “misclassification”, we will take a giant step toward securing our borders.
Ultimately, we need bipartisan support in Washington for real immigration reform – reform that creates legal options to access the workers we need and eliminates this underground economy, thereby fueling economic growth and protecting legal workers while securing our borders.
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