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.

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

Texas’s capital city is economically booming in a way that’s almost unlike any other city in America, largely because of the region's technology industries.  Now, it is time for Austin to take the next step to ensure that the high-wage, high-tech economy also supports the creation of quality blue-collar jobs for working families.

That’s the argument laid out by Gregorio Casar, one of the “junkyard dogs” at the Workers Defense Project and now a candidate for Austin City Council.  He’s running for office at a chaotic time for Austin municipal elections now that the city has – as others have – moved to single-member districts that will allow each neighborhood to choose who represents them rather than having only at-large council members.  As many as six other candidates may be in the race with Casar before the vote this fall.   Read more » about Creation of Quality Construction Jobs Emerges as Issue in Austin Political Race

Editor’s note: In April, Professional Janitorial Services Executive Don Dyer delivered this powerful testimony to the Texas House Business and Industry Committee, which is studying what more lawmakers might need to do to combat the problem.  While we've repeatedly covered the issue and how it impacts construction, Dyer's testimony shed new light on just how prevalent this problem is in another industry.  Below, we're proud to share his testimony in full for our readers.

Our company has operated in the Texas janitorial industry since 1986 and we hold offices in Austin, Houston, San Antonio, El Paso, and Corpus Christi.  In our 28 years of existence we have watched the Texas economy grow by leaps and bounds and have enjoyed considerable success as we grew from a small company with a handful of cleaners to now over 2500 janitorial employees.  We attribute our success with providing superior service to our clients and treating our employees in an ethical and respectable manner.  However, during this same time we have also seen an alarming trend in the janitorial industry regarding the misclassification and unethical treatment of employees. Read more » about Janitorial Services Executive Speaks Out Against Worker Misclassification

In a marathon hearing held by Texas lawmakers on the issues of workers’ compensation and worker misclassification, representatives from businesses and labor came together to talk about what could be done to level the playing field for ethical companies and improve the lives of middle-class Texans.  But, there was also significant pushback from certain business interests which would like to keep things as they are.

The House Business and Industry Committee listened to about six hours of testimony on both issues, which some would argue are inextricably linked.  The House is holding hearings on various issues right now in preparation for the next regular legislative session, which will begin in January of 2015.  The point is to help shape whatever legislation might be filed next year.   Read more » about Texas House Hearing Could Signal Big Changes Ahead for Misclassification and Workers' Comp

On Tuesday, the Texas House will consider what more needs to be done on the issue of worker misclassification. Mike Beeter, President and CEO of BRI Roofing in Fort Worth is very concerned about the practice, which has been called a “cancer” in the construction industry. We are pleased to publish his open letter to the members of the committee looking into it.

Honorable members of the Texas House Committee on Business and Industry,

I am writing today as a business owner concerned about a serious challenge facing not only my industry, but society at large. The problem is so immense that it will not be fixed without ethical companies as well as government joining together to stop the fraud known simply as “worker misclassification.” I am very glad to see your committee is considering what to do about the problem. Below, you will see my thoughts as to the real risk associated with keeping the status quo. The issue is complex and I am providing you with many details to consider. But, the bottom line is that worker misclassification is fraud, plain and simple. Read more » about An open letter to Texas Lawmakers on Worker Misclassification

A Texas House Committee has scheduled a hearing on the issue of worker misclassification and what more the state may need to do to combat the problem that is particularly rampant in the construction industry.  The House Business and Industry Committee will take testimony on the implementation of a limited crackdown that was signed into law by Governor Rick Perry last year.  The hearing is slated for Tuesday, April 22 at the state capitol.

The official announcement of the public hearing says that the panel of lawmakers will be looking into “the issue of misclassifying employees as independent contractors on workers, employers, income tax withholding, and the unemployment insurance system.  And the review of current statutory deterrents, including those required by HB 2015.”  That bill just took effect on the first of this year.

As our readers are well aware, the practice of employee misclassification happens when companies pretend their workers are independent subcontractors when, by law, those workers should be properly classified as employees.   Read more » about Misclassification Hearing is Set in the Texas House

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