Partnership to Fill Cracks in Construction Industry

Working for You

Dealing with cracks in masonry is no problem for Doug Burton of Whitman Masonry Co. in Raleigh, North Carolina. It’s the cracks beneath the surface that are causing him headaches. Such cracks in the once direct, simple relationship between employee and employer now often result from the misclassification of employees as independent contractors, which can lead to minimum wage and overtime violations cheating workers, and often result in an unbalanced playing field for employers. When employers misclassify employees, they typically don’t pay overtime, Unemployment Insurance, worker’s compensation, or a variety of other taxes for these workers.

Burton, who has 35 years of experience in the construction business – 25 of which have been in an ownership position – contends that misclassification is not being done out of ignorance of the law; rather, contractors see their peers doing it and prospering without consequences so they follow suit.

“It’s a big problem in the construction market. A majority of people who are declaring their employees as independent contractors are doing it to avoid paying payroll taxes and other benefits,” he says.

Doug Burton

To address this widespread problem, the Department of Labor has partnered with the IRS and 35 states to enhance information sharing and coordinate enforcement. North Carolina is among the latest to sign a memorandum of understanding and Burton is hoping it’s the first step toward holding contractors in his state accountable.

“Ideally, you would like to see the industry police itself, but that is not being done,” he says. “If the federal government discovers you’re not paying unemployment taxes, there has to be a way they can inform the state and vice versa. The MOU provides a mechanism to allow the sharing of such information.”

Burton explains that he has lost bids on construction contracts against competitors who treat all of their workers as subcontractors, misclassifying them as independent contractors and paying them under the table. A single employee may cost Burton 20 percent more than what that same worker would cost these competitors. However, he knows that playing by the rules benefits his bottom line in other ways. It cultivates loyalty that results in efficiencies, Burton says, noting that nearly 40 percent of his current employees have been with his company for at least 10 years.

Two years ago, an investigation by the Charlotte News & Observer claimed that $467 million in state and federal taxes were being lost in North Carolina each year due to misclassification fraud in the construction industry alone. “Those misclassifying workers are not paying worker’s compensation premiums and no federal or state withholding taxes. It makes for an unfair playing field and it has to stop,” says Burton.

For a fact sheet on myths about misclassification, go here.

Editor’s note: The “DOL Working for You” series highlights the Labor Department’s programs in action. View other blog posts in the series here.

Mark Huffman is a public affairs specialist in for the department in the District of Columbia.

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I applaud the DOL for recognizing this problem and their efforts to correct it. But I have one question and one statement to make. My question is what happens if a state refuses to sign an MOU?

My statement is there is another type of misclassification that I would bet my bottom dollar on is far MORE widespread and more commonly used by contractors. It involves the Government contracting world in regards to The Davis Bacon Act construction projects and The Service Contract Act maintenance contracts. I am a Union Organizer and compliance is a major part of my job. I frequently use the FOIA process to obtain copies of Certified Payrolls on Davis Bacon Act covered construction projects. I have done this for many years and have yet to diagnose one yet that didn't have violations. The DOL sets the wages for the construction trades from surveys and issues a Wage Determination for specific areas as the minimal for each trade. The problems are multiple;
PROBLEM #1- Misclassification. Workers will perform the work of a higher trade but paid from a lesser classification. Either they do not know this law or their is NO REQUIRED posting of the wage determinations, let alone THAT law. Even if they do know they will not speak out about it because they are usually making more money than on a non-DB covered job. I rarely see the job-site postings and if there are any, they are inside the General Contractors job trailer where only few workers ever get to see it. This is illegal.
PROBLEM #2-Payments of the actual BENEFITS earned and reported on the certified payrolls. This is where it is relatively easy to hide compliance. The most major problem there is whoever is responsible to verify the actual payments into bonafide benefits programs such as healthcare which some "pool" for other workers not on those projects OR to pay their side of any contribution for employees. It is not their money to do that with or for any other employee that did not earn it. 401K, is also an easy way to hide compliance.
PROBLEM#3-Apprentice to Mechanic RATIOS. I have also yet to see or hear the correct answer to what that ratio is from any compliance officer, contracting officer, common worker or DOL agent in the state of Virginia. Too many Apprentices versus Mechanics. (CHEAPER LABOR) This is amazing and they get away with it. This is severely abused and unfair to lawful contractors on bid day.

As I said from the start, I do thank the DOL for finally doing something about the other type of misclassification but you need to open your eyes to the most common and severely abused type which would far out number the dollar amounts the American worker is being underpaid and abused by. I am available to anyone that wants the paper proof or worker testimony evidence as proof. This not just a local are problem. It's Nationwide. I am thankful to Secretary Perez and the upper echelon DOL people and their fight for the American worker but please take on the bigger issue of the "other type of misclassification.
If you want to be a real American hero Mr. Hufman, please do so!

This article is eye-opening to the problem facing this industry. Keep up the great reporting.

and a great article~!

Great article! The practice of classifying workers as independent contractors hurts businesses trying to compete for work and makes for an uneven playing field. it also hurts workers when they are paid on 1099s. Finally, it hurts all of us: as taxpayers by increasing our load, and when those workers need safety nets but haven't contributed. it is a lose-lose and it is time for it to stop.

I appreciate the fact that this issue is being voiced. In order for many companies to avoid the costs of treating their employees equitably, they end up finding loopholes that eventually ends up hurting hard-working Americans.

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