There are an estimated 2.16 million construction workers in the U.S. who are illegally paid and misclassified as independent contractors every year by thousands of unscrupulous contractors, intent on defrauding federal, state and local governments out of an estimated $8.4 billion. The Pennsylvania Joint Task Force on the Misclassification of Employees found that such misclassification resulted in an annual loss of $91 million to Pennsylvania’s Unemployment Compensation Trust Fund.
Greed is the prime motivating factor that drives more and more contractors to underpay their workers, offer no benefits or medical coverage, and routinely use labor brokers to keep their employees off the books and avoid paying taxes, Social Security benefits and insurance coverage. This illegal practice allows those who cheat to substantially underbid their law-abiding competitors, who absorb all appropriate employee costs – including paying all required taxes, health insurance, retirement and workers’ compensation benefits.
Misclassification puts ill-gotten gains in the pockets of tax cheats, while also defrauding the government. It encourages lawlessness and an environment where workers are exploited, taken advantage of, and endangered. The UC Berkeley Labor Center found that “28% of families of construction workers in Pennsylvania are enrolled in one or more safety net programs at a cost to the state and federal government of $428 million per year.” Compared to all Pennsylvania workers, construction workers are more than twice as likely to lack health insurance (7% compared to 16%).
Low wages and employee misclassification often go hand-in-hand with unsafe job sites where OSHA safety rules are often ignored, if nonexistent. The failure to enforce job safety requirements has had deadly consequences – and law enforcement and local prosecutors are now paying attention and taking action.
One case involved a 27-year-old Irish immigrant with an American wife and an infant son. He tragically lost his life working as a misclassified subcontractor for a Delaware County company that was criminally charged with unlawful labor practices, including multiple counts of Workplace Misclassification, Deceptive Business Practices, and Insurance and Worker’s Compensation Fraud.
Another recent case involved an immigrant from Belarus who left behind a wife and a three-month-old child after he was killed on a job where the contractor was cited by OSHA for general safety and health violations and a failure to provide fall protection.
Misclassification has severe consequences beyond the financial loss to federal, state and local government coffers. It is a symptom of an illegal business model that cuts corners, pays low wages, fails to play by the rules and is willing to risk workers’ lives. It’s time to increase enforcement and prosecution of those who willfully break the law and misclassify their workforce while ignoring job site safety requirements – all to enrich themselves.
William C. Sproule is Executive Secretary-Treasurer for the Eastern Atlantic States Regional Council of Carpenters where he represents over 43,000 carpenters from Pennsylvania, New Jersey, Delaware, Maryland, Virginia, West Virginia, and the District of Columbia.