Construction: The Cost of Worker Misclassification

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When construction companies misclassify employees as independent contractors, they can gain a 30 percent bidding advantage, according to the United Stats Brotherhood of Carpenters. This is because they avoid paying the labor costs that legitimate businesses pay.

Although there are legitimate independent contractors — small operations that have proper licenses, insurance, expertise and tools — some employers purposely misclassify employees as independent contractors in order to avoid paying benefits, insurance and taxes.

Recent Crackdown

Although the lack of resources makes it difficult for state and local agencies to crack down on the companies that get away with worker misclassification, some authorities are finding success.

For example, the Massachusetts attorney general’s office recently fined a construction company $837,341. In additional to misclassifying their employees as independent contractors, the company failed to make timely payments to workers and took illegal deductions from their paychecks.

States including Florida and New York have also recently arrested or indicted business owners for worker misclassification. In addition, Colorado recently created a state task force that will make the process of filing complaints easier.

As states and localities take more notice of worker misclassification, these examples should serve as a warning for employers in the construction industry.

Amanda S