Unprecedented: The Texas Workforce Commission Supports Cracking Down on Payroll Fraud

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In a move that a key lawmaker called “unprecedented” and “unmistakable,” The Texas Workforce Commission (TWC) has unanimously voted to press the legislature to crack down on employers who commit payroll fraud.

The commission is asking the legislature to impose penalties on companies that intentionally misclassify their employees when they get government contracts.

Misclassification of employees happens when a company pays a person as a contractor when that person actually, by law, should be paid as an hourly employee.  This is done to avoid payroll taxes and significantly cut their costs.  Federal law defines what kind of worker can be classified as an employee versus an independent contractor.  Dozens of other states, Oklahoma is a particularly strong example, have passed laws to deal with this.

For the past ten years, Workforce Commissioner Ronny Congleton has pushed for the commission to take a stance on misclassification, often called payroll fraud, but until now his proposals have never gotten any traction.  The dynamic has changed.  More and more legitimate business owners have come forward to say they’re finding it harder and harder to compete with unscrupulous employers who cheat on their payrolls.  Also, the Construction Citizen reporting staff has worked tirelessly to expose the problem and bring to light the economic and social costs associated with it.

Commissioner Tom Pauken, who started the process as a skeptic of tackling the issue through regulations, spearheaded the compromise at the Workforce Commission.  “This is a problem that has to be corrected and we’ve come up with a workable solution,” he said.  “We can get this through the legislature.”  Pauken's compromise would be what he called a pilot program to root out payroll fraud on government contracts throughout Texas.

The Texas Construction Association says that many of its members claim employers who misclassify their employees are able to underbid them by as much as 25 percent.  It’s a top priority for the TCA during the 2013 session of the legislature.  Mike White, speaking for the TCA, said “The commission’s action today clearly sends the message that this is a serious problem that requires a focused effort to find a solution that will be strong enough to curb improper classification of construction workers.”

Stan Marek, President and CEO of the Marek Family of Companies, told commissioners he’s pleased they’ve voted to crack down on the problem that is now rampant within his industry.  Marek previously testified that this is a “cancer that is eating at the heart of our industry.”

Senator John Carona, R-Dallas, has taken an interest in the issue, and his staff has been monitoring the proceedings at the Workforce Commission very carefully.

“The message is unmistakable.  Today’s unprecedented action by the Workforce Commission signals a new collaboration and willingness to support the businesses and the workers who follow the law, and root out the unscrupulous ones,” Senator Carona told Construction Citizen.  “Winners don’t cheat, and the cheaters’ day is over.  I will be working with stakeholders, using what we’ve learned in many other states, to close the loopholes and restore fair competition to the construction industry.”

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