There’s almost nothing partisan or ideological about trying to stop companies from cheating taxpayers and their workers, which is exactly what happens when some firms misclassify their employees. As our readers know, worker misclassification happens when a company pretends its employees are subcontractors with the intent of avoiding payroll taxes and benefits like health insurance. Unions call it “payroll fraud.” Many of us just call it cheating, plain and simple.
The fact that this is a bipartisan issue became extra clear this past week following our report on new efforts in the Texas Legislature to try to rein in the practice, which has rightly been called “a scourge” and “a cancer” in the construction industry. It happens in other industries as well but it is especially rampant in construction.
Previous legislative attempts to deal with this in Texas have had mixed success. Now, a new bill has been filed in the Texas House. As we reported last week:
The language in this bill, filed by Rep. Senfronia Thompson, D-Houston, was crafted by construction executives, workers’ rights advocates and others with a stake in the issue. An identical bill did not pass in the legislative session two years ago. An important point here is that misclassification of workers has been illegal for years.
The bill passed in 2013 (targeted at misclassification in government contracts) and the one proposed now only create penalties for something that was already illegal. If there’s no price to be paid for breaking the law, many will simply ignore it. We should also note that there are many legitimate uses of subcontractors. The problem arises when that classification is abused with the intent of cheating the system.
Longtime conservative political commentator and blogger Bob Price, writing for Breitbart Texas, followed up by pointing out to his Republican brethren that some companies misclassify their workers as a way to exploit the labor of people who are not authorized to be in the United States.
“This technique is often used by companies to work illegal immigrants as independent contractors avoiding the I-9 employment documentation process,” Price wrote. “When this happens, the cheating company gains an unfair competitive advantage over companies who properly classify their employees and hire only legal workers. These same or similar companies will also use this misclassification process to bypass I-9 employee documentation requirements and hire workers who are not legally eligible to work in this country. This creates a huge magnet for illegal immigrant workers.”
Price is correct that many of the workers exploited in this fashion are undocumented.
Whether they’re legally in the country or not, employees misclassified as subcontractors are denied basic protections like minimum hourly wages, overtime, benefits and workers’ compensation coverage for on-the-job injuries. For this reason, many ethical operators in the construction industry have asked that if Congress ever passes immigration reform, people who obtain legal status under that legislation must be required to work for an employer that properly classifies them as employees and deducts and matches taxes.
Without that, citizens are forced to pay more for health care and local property taxes when the hospitals in our communities incur uncompensated costs associated with treating the injuries of people who have no workers' comp. Companies that play by the rules are subsidizing the labor costs of companies that cheat.
That’s why many conservatives are already reacting positively to this proposal from Rep. Thompson, who is considered a liberal Democrat. It’s also the reason a Republican proposed the exact same language two years ago. Increasing penalties for worker misclassification is something tangible that can be done at the state level to address our underground economy without punishing businesses that are operating in good faith.
One conservative who commented on Price’s Breitbart article said, “The world is truly upside down” because “I actually like an idea a Democrat put out, I would make the fines much higher, but hey at least the democrat started someplace.”