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 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]

Editor’s note: More and more news outlets are covering the epidemic levels of cheating in the construction industry and we’re thrilled to see it.  One of the latest and best examples is The Dallas Morning News Editorial Board, which has now said worker misclassification is part of the “Dark Side” of the Texas economic miracle.  We are told that the editorial board, at least in part, was inspired by the work we’ve done at Construction Citizen to expose the problem.  The following editorial was originally published in The Dallas Morning News.  Reprinted with permission.

Editorial: The dark side of Texas’ economic miracle

Every day, Texans celebrate the fruits of light government regulation: Housing is cheaper here, the economy is healthy, and jobs are available.

The construction crane easily could be declared the state bird.

But our economic miracle has a troubling byproduct: Texas leads the nation in worker fatalities, according to a recent Dallas Morning News analysis of federal data.  The special report by James Gordon reveals that over the last decade, 579 more deaths happened on the job than statistically should have occurred in a state the size of Texas.   Read more » about The Dallas Morning News: Texas Taxpayers Should be “Incensed” Over Worker Misclassification

The cheaters in construction who all too often get away with avoiding payroll taxes and responsibility for their workers’ injuries are coming under even more scrutiny.  We’ve pointed out the problem for years at Construction Citizen because it is a blight on this industry and a roadblock to improving it for generations to come.

The practice by unscrupulous contractors runs counter to our mission of advancing a socially responsible, sustainable and value-added construction industry.  Misclassification in construction – and other industries as well – leads to the degradation of the employer-employee relationship, turns workers into disposable commodities, cheats taxpayers like you and me out of billions of dollars, and makes it nearly impossible for ethical companies to compete.   Read more » about A Nationwide Spotlight on Worker Misclassification [VIDEO]

Because of an absence of federal action on the problem of rampant worker misclassification in construction, we continue to track the progress of states across the nation that are trying to deal with what's been called “a cancer” in the industry.  Lawmakers in Minnesota have gotten particularly aggressive, pushing a registry for subcontractors that can be easily checked and then revoking licenses of contractors who don't comply.

Via Jonathan Barnes at the Engineering News-Record:

“After some success with the new effort, the Minnesota legislature recently extended the state's Contractor Registration Pilot Program for another year, saving it from expiring on June 30 as it was set to do, and extending its life until at least June 30, 2015.   Read more » about Minnesota Misclassification Crackdown Gets Results

As we've written numerous times, a primary way to deter cheating in the labor market in construction is for the hammer to be dropped on companies that don't follow the law.  All too often, ethical contractors that properly classify their workers as employees are bidding against companies that can offer customers a lower price because they're paying people as “independent contractors” or, in an interesting twist, as “member/owners.”  This misclassification gives cheaters a competitive advantage that they should be punished for, plain and simple.

That was the case with an Arizona company that was on the hook earlier this year for $600,000.  The National Roofing Contractors Association reported the case on the group's website:   Read more » about Arizona Company Shells Out Over a Half Million For Misclassification

The labor shortage in construction is no myth. Here in Texas, amidst the immigration debate, we’ve heard from business leaders who tell us that it now takes about four weeks in Houston to frame up a house and homes built in Dallas take about six months to complete.  Over at Business Insider, reporter Mamta Badkar reminds us that America-born construction workers are simply vanishing:

“The reasons are varied. Many of these unemployed construction workers went to other sectors like manufacturing. Many found themselves moving to the oil and gas states where the energy industry has been booming. At least some have just left the labor force.   Read more » about Competition For Labor Heats Up

The Construction Citizen team has been tracking the progress of worker misclassification laws across the country, including the newly minted crackdown in Tennessee.  Elizabeth McPherson wrote about that when it was first passed last year.  Now we get word out of Nashville that a drywall contractor based in Music City has agreed to pay more than $300,000 in penalties for understating his payroll and misclassifying workers to avoid paying the required taxes and workers compensation insurance.   Read more » about Tennessee’s Worker Misclassification Crackdown is Already Making a Difference

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