New Misclassification Study Shows Impact in California

By Jim Kollaer on Wed, 10/15/2014 – 10:30am 

In a September 2014 study entitled Sinking Underground: The Growing Informal Economy in California Construction, misclassification of more than 39,800 construction workers is a key reason that the underground economy in construction is contributing to the low wages, difficulty in recruiting qualified craft workers and loss of wages and taxes in the State of California.

According to the study, released by the Economic Roundtable, a non profit research organization based in Los Angeles, in 2011 more than 143,900 construction jobs in the state were “informal” – code for off the books, misclassified as independent contractors or unreported by employers.

The study looked at wages and construction jobs from 1972 to 2012 and found that the number of construction workers that were unreported or misclassified increased by 400% during that period.

The study cites that, “Specialty trades, such as drywall, have the highest level of informality with over 25% employed informally in 2012.  Building Construction was next, with 20% estimated to be informal.”

The major impact on the industry is that those construction companies in California who are “doing it right” have costs that are 30% higher that the “off the books and misclass” contractors.  Imagine what that disparity does to the bidding process.  The report cites several personal stories to illustrate its points.

(Read More)

(link to Economic Roundtable)

(link to pdf of Economic Roundtable study)

Legislation Would Go After Employers Who Misclassify Workers to Avoid Benefits

A state lawmaker says Pennsylvania regulators are coming up short when it comes to enforcing a 2010 state law intended to target companies that misclassify their workers as independent contractors.

State Senator Mike Stack (D-Philadelphia) said there is room in the economy for independent contractors, but, “there is obvious abuse of the classification which denies employees rights, benefits and protections accorded under labor laws.”

Under Act 72, independent contractors are supposed to use their own tools and equipment and should not be under the direct supervision of their employers.

The law outlines penalties for misclassifying workers, but Stack said the commonwealth is not adequately enforcing the law

(Read More)

Virginia Is for Compliers: State Can Now More Easily Pursue Misclassification, Subcontracting Violators

Virginia’s penalties for misclassifying workers in order to avoid paying insurance costs got a boost this month thanks to a new law.  The Virginia Workers Compensation Act made it easier for the state to take action against violators, according to Virginia Workplace Law:

The civil penalty is now up to $250 per day for each day of noncompliance, subject to a maximum penalty of $50,000, plus collection costs.”  The VWCA requires every business owner with more than two employees (a part-time worker is counted as one employee) to have coverage for such worker.

Language in the law will curtail unscrupulous employers from rebranding their employees as independent contractors, the Workers Compensation Commission said:

“Employers should also be aware, designating a worker as an ‘independent contractor’ does not necessarily mean they are not an employee.  Workers’ compensation looks to whether the business exerts control over the manner and means of how the work is performed. In the event of a claim, the facts of the work circumstances will determine if the individual is covered for workers’ compensation, regardless of payment on a 1099 designation.”

(Read More)

Worker advocacy groups say nearly 70 percent of port truckers misclassified as contractors

Nearly 50,000 of the 75,000 port truckers in the U.S. are misclassified as independent contractors, according to a recent report, which says the misclassification costs federal and state governments significant tax losses.

The Feb. 19 report was sponsored by the National Employment Law Project, Los Angeles Alliance for a New Economy and Change to Win Strategic Organizing Center – all three worker advocacy groups.

(Read More)

Labor law violations alleged at new Holiday Inn Express; lien seeks more than $247,600 in unpaid wages

The California Labor Commission on Monday filed a lien on the Holiday Inn Express property in Eureka with the Humboldt County Recorder’s Office to recover more than $247,600 in unpaid wages for 31 construction workers.

PacWest Contracting, the subcontractor hired by Jansen Construction to build the hotel, allegedly misclassified employees as independent contractors to pay them less, California Department of Industrial Relations spokesman Peter Melton said.

Misclassification of workers: a costly issue

Misclassification of workers as independent contractors remains a top employment law problem area, frequently resulting in fines, orders for back wage payments, penalties and an array of headaches for unsuspecting employers. Proper classification of workers can be difficult for several reasons:

 

  • There is no singular definition of employee or independent contractor under federal or state law.
  • An agreement between an employer and a worker that the worker is an independent contractor may have little, and in some instances, no legal significance. Independent contractor is a legal status determined by factors that go beyond the employer’s and employee’s desire to contract for work on a certain basis. Written agreements can be quite helpful, but are not dispositive.
  • Both federal and state policy has been trending towards classifying workers as employees due to perceived governmental and individual worker benefits from employee payroll withholding, workers’ compensation and unemployment insurance.
  • The relationship between employer and worker frequently evolves over time, and even a well-intentioned employer can find that a worker once properly classified as an independent contractor has now become misclassified.

(Read More)