To some in construction, avoiding payroll taxes by paying workers as independent subcontractors is just the way to do business. But, as we've repeatedly noted, it is illegal to do that when the person you're paying meets the government's definition of an employee. The intentional misclassification of workers is also one of the largely unseen causes for the degradation of the American middle class because it undermines the employer-employee relationship in a way that leads companies to simply throw people away when they are through with them. This problem didn't reach crisis levels overnight, and it won't be solved quickly, either. But the tide is starting to turn.
The federal government has largely been on the sidelines when it comes to enforcement, so what we've seen is more and more states making moves to crack down on the practice. Texas is gearing up to root out worker misclassification on taxpayer subsidized projects, and other states are pursuing bolder policies. A recent report by Bloomberg News declares that “States from New York to California are taking steps to crack down on employers who improperly classify their workers or fail to declare their income.” From the Bloomberg report:
“‘It is fraud plain and simple that drains governments at every level of much needed revenue,’ Sarah Leberstein, a staff attorney with National Employment Law Project in New York, said in an interview.
“Investigations at the state level back up the latest national audits, which suggest the problem is worsening. A Department of Labor study of nine states in 2000 found that up to one third of employers misclassified workers. In 1984, an Internal Revenue Service report put the figure at 15 percent, leading to 3.4 million misclassified workers and a $1.6 billion revenue loss. The agency is in the process of updating its estimates.
“‘There’s just a general increase in lawlessness among employers,’ Ross Eisenbrey, vice president of the Economic Policy Institute, a Washington-based non-profit group affiliated with organized labor.”
After seeing that Bloomberg report – which points to Construction Citizen as an authority on the issue of worker misclassification – one of our friends who writes a blog over at Engineering News-Record, Mike Hill, had this to say:
“If you're a construction employer, and you're using people as ‘independent contractors’ versus as employees, it's time to stop! More states are gearing up to find you.
“More contractors who are NOT cheating their workers are getting legislators' attention. If you think you can get away with this process without consequence, those days are numbered.
“Astute owners are also increasingly aware of the consequences of the practice. They are the ones who are also supporting programs to bring more workers into our industry.
“That's because those owners realize they get a higher value building if the workers on the job know what they're doing when they build it. And they get paid what they're legally required to be paid for their valuable work.
“And they do excellent work because they are trained, paid properly, are covered by workers comp, likely get paid vacation and appreciate our industry's best employers.
“If you choose to continue cheating your workers and their families, and therefore, your clients and government taxing authorities, I suggest (contrary to the goal of this blog) that you sleep with one eye open.”
Your thoughts are welcome in the comments below.
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