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Unions, Business Team Up to Fight Payroll Fraud


September 23, 2014

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Unions and businesses are teaming up to crackdown on payroll fraud in Texas.
Photo: Workers Defense Project

Business and labor don’t always agree on many things – but when it comes to cracking down on contractors who dodge taxes and abuse employees, both sides are coming together to take action.


In Texas, law-abiding corporations, labor unions and workers’ rights advocates are lobbying for laws that punish companies that mislabel workers as independent contractors. This all too common practice lets employers get out of paying payroll, unemployment and others taxes, while cheating workers out benefits like Social Security and workers' compensation.

Former state Rep. John Davis, a Republican from Houston and author of one of the first laws targeting misclassification, told McClatchydc.com:

It’s an unspoken thing in [the construction] industry, but we all know how the game is played. Certain contractors, they doctor books and act like they are complying but they are not.

Davis’ law, which was endorsed by many construction trade groups and building trades unions, fines contractors $200 for every employee improperly labeled an independent contractor.

Union activists are also mobilizing in the workplace to stop payroll fraud. Members of Austin Local 520 found widespread misclassification at several high-rise apartment projects in downtown Austin.

Local 520 Business Manager Chris Wagner told McClatchydc.com:

Over the last 10 years, we’ve really focused hard on making sure that when companies are bidding or trying to land publically funded jobs, that we’re out there letting them know that they’re being monitored and being watched.

As we wrote in the May 2013 issue of the Electrical Worker:

The end result [of misclassification] is continued pressure on employers to drive working standards, along with wages and benefits, downward. As one subcontractor told WDP researchers: ‘Payroll fraud pushes the market lower, lower and lower. If it doesn't change, we'll have to do things like eliminate medical benefits, maybe cut wages, maybe stop their 401(k). If it doesn't stop in two or three years, we may have to join them.’

And with no workplace protections or overtime rules in effect, misclassified workers are ripe for abuse.

The McClatchy series on misclassification is the result of a yearlong investigation and its finding are disturbing.

It found that 15 percent of construction workers in Florida are wrongly listed as contractors. In North Carolina it’s 35 percent, while in Texas that percentage approached 40.

The investigation also found its use on federal jobs, including projects funded by the 2009 stimulus bill. 

The largest government infusion of cash into the U.S. economy in generations – the 2009 stimulus – was riddled with a massive labor scheme that harmed workers and cheated unsuspecting American taxpayers.

At the time, government regulators watched as money slipped out the door and into the hands of companies that rob state and federal Treasurys of billions of dollars each year on stimulus projects and other construction jobs across the country, a yearlong McClatchy investigation found.

A review of public records in 28 states uncovered widespread cheating by construction companies that listed workers as contractors instead of employees in order to beat competitors and cut costs. The federal government, while cracking down on the practice in private industry, let it happen in stimulus projects in the rush to pump money into the economy at a time of crisis.

President Obama issued an executive order July 31 requiring all prospective contractors to disclose labor law violations – including fraudulent job classifications – before getting a federal contract.

The Government Accountability Office reports that almost two-thirds of the largest 50 wage-and-hour violations were at companies that went on to receive new government contracts.

Read more here.