There are contractors who don’t care about employment regulations and who ignore the regulations that distinguish an employee from an independent contractor.
If subs (including individuals) are willing to work no matter what and how they are paid, that's okay. Contractors can make a lot more profit.
They have never heard of anyone getting caught or jailed for using misclassified employees.
And no, they don’t know or care what worker misclassification means.
Stan Marek, chairman and CEO of Houston-based Marek Brothers Family of Companies, knows what it’s like to compete with this kind of contractor, the kind that refuses to play by the rules. Marek’s doing all he can to fix the problem, including visiting with U.S. Senators and speaking before the Texas legislature.
Marek points out that independent subcontractors work long hours with no overtime pay. “How can a company that pays time-and-a-half for over 40 hours of work compete with these cheaters?” Marek asks.
You can watch and listen to Stan's February 12, 2013 appeal to the Texas State Legislature at this location http://youtu.be/xLLg0n0puSE
“No workman’s comp insurance means they rely on emergency rooms for care,” Marek says. “If someone comes into an ER with an injury, they don’t try to find the ‘employer.’ They chalk it up to indigent care and then charge the heck out of those of us who have health insurance."
"We all pay for that in the form of higher health care costs," Marek says. He also points out that the presence of undocumented immigrants allows this system to work for the cheaters.
Like immigration and gun control, we have a lot of regulations already in place. Anyone who thinks this is something new should look at the IRS training course, entitled Independent Contractor or Employee? It’s a 160-page course at http://www.irs.gov/pub/irs-utl/emporind.pdf.
It’s particularly informative to note the publication date, October 30, 1996!
If you want to see something more current, the Internal Revenue Service updated its website on the topic last month at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F.
In addition to improving enforcement, maybe we also need to add the ability to inflict a lot more pain on the bad operators.
Worker misclassification, or payroll fraud, is when a company incorrectly classifies an employee as an independent contractor. Paying someone that way, using a 1099, can save a company a lot of money. Unlike a properly classified worker, employers of these workers don’t pay for overtime, Social Security, Medicare, health benefits, vacation, Workers Comp, unemployment tax, etc.
Three groups suffer when employers staff their companies this way.
First, the misclassified employee and his or her family miss the benefits of proper employment. They don't get paid overtime for more than 40 hours work like a real employee does. They shoulder the burden of taxes and insurance their employer should pay.
Second, all of us taxpayers suffer from the missing millions of dollars in tax payments and the missing health insurance coverage that forces some independent contractors to rely on public health services, paid for by taxpayers.
Third, how would you like to compete with a company that has a lower, but illegal, overhead cost structure? Unfortunately, many GC’s and owners turn a deaf ear to the complaints by legitimate contractors like Marek Brothers when they try to explain why their bid is higher than the illegitimate competitor with a lower price.
That’s another reason why the number of cheaters is growing due to minimal enforcement by buyers and the government. Why go to the expense to pay overtime over 40 hours if nobody forces you to?
Fortunately, legislators in Washington and Texas are listening to Stan and his fellow contractors trying to operate their businesses legally and ethically.
Recently, Stan met with New York Senator Chuck Schumer to talk about worker misclassification. He left with assurance the topic will be included in upcoming discussions about immigration reform. The two subjects are intertwined since many problems with misclassification involve undocumented, immigrant workers. Companies that take advantage of the workers’ status need strong reasons to change their behavior.
In addition, in September 2010, former Senator (now Secretary of State) John Kerry and a number of co-sponsors, introduced “The Fair Playing Field Act” summarized at http://thomas.loc.gov/cgi-bin/bdquery/z?d111:SN03786:@@@D&summ2=m&. That same year, the House produced The Employee Misclassification Prevention Act, http://www.washingtonwatch.com/bills/show/111_HR_5107.html. HR 5107 is no longer current. It was reintroduced in the current Congress as HR 3178, with the same name.
In Texas, State Senator John Carona filed a bill on February 20 that may help stop worker misclassification. You can keep up with the latest progress on the bill at http://www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=83R&Bill=SB676
The University of Texas recently published a study on the realities of what companies are doing. It found that 40% of workers are misclassified. The study is at http://constructioncitizen.com/sites/default/files/Build%20a%20Better%20Texas.pdf.
An excellent source of nformation about the legislative progress is at http://constructioncitizen.com, where journalist Scott Braddock and many others have come together to bring awareness to this issue.
Now you have several resources that may help you figure out why you’re losing bids to someone who might not play fair. Maybe your clients would like to know more about that other contractor’s methods.
Hopefully, it will matter to them. It certainly should!
If you’ve lost a job to a company you know isn’t following the rules, the frustration will keep you awake at night. If you help do something about it, you will sleep a lot better!
