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Spurred by Media Coverage, North Carolina Lawmakers Zero In on Worker Misclassification

As is happening in Texas and other states, lawmakers in North Carolina are now finally taking a look at what they should do to crack down on the epidemic levels of worker misclassification in the construction industry. Time Warner Cable News in Raleigh reports:

It comes on the heels of an investigative series in the News and Observer and its affiliated newspapers, highlighting the illegal practice of classifying employees as independent contractors in order to avoid paying taxes and other benefits.

Last year North Carolina's Division of employment Security re-classified nearly 5,700 workers from independent contractors to employees. So far this year tax auditors have already re-classified nearly 4,000 employees.

Investigators estimate in North Carolina it's added up to nearly a half billion dollars in lost state and federal taxes.

While they’re just starting to look at the issue in North Carolina, lawmakers in Texas have been studying the issue in-depth ahead of the 2015 session of the Legislature. They’ve looked at it previously, and in 2013 they actually took a first step of imposing penalties for misclassification of workers on public projects.

Construction Citizen reported in April that one big difference this time around is that it’s not only ethical contractors in the construction industry who are tired enough of this problem to speak out forcefully:

Don Dyer, an executive at Professional Janitorial Services, told lawmakers that his company operates in major cities around Texas, with the exception of the Dallas/Fort Worth area because “you cannot do business in Dallas, Texas unless you operate illegally.” He said that his company has enjoyed great expansion as the Texas economy has grown, but there has simultaneously been a huge increase in the number of companies cheating taxpayers and undercutting ethical businesses. Calling the trend “alarming,” Dyer pointed out that misclassification is already illegal, but “because of weak enforcement mechanisms, there are virtually no tangible consequences for violating the law.”

“Law abiding companies that classify their employees legally simply can’t match the prices of illegal operators and are slowly being driven out of business because they can’t bid low enough to win contracts,” Dyer said. Citing various studies, Dyer said businesses in his industry that cheat enjoy a 30 to 40 percent cost advantage.

In that same hearing, construction executive Stan Marek testified about both worker misclassification and the need for mandatory workers’ comp. The latter could at the very least be required in construction, Marek said. His company, Marek Brothers Systems, operates in eight cities nationally and provides coverage for its employees. He told the committee that if they don’t address workers’ comp and other underlying issues in construction, including misclassification, there won’t be a workforce in the decades to come.

Marek also told lawmakers that while there needs to be better enforcement of existing law, a private sector solution is emerging in Houston in the form of the Construction Career Collaborative, or C3. He said the simple concept, which is growing in popularity, is that owners of projects must demand that the general contractors and their subcontractors adhere to certain principles on their jobsites. Those include paying hourly, paying overtime, and providing safety training and craft training.

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