When a ‘contractor’ is really a cheated employee

‘Worker misclassification” is a dry term that smacks of paperwork mistakes and picayune regulations.

But as a multi-state McClatchy Newspaper investigation has revealed, it’s often a deliberate scheme to cheat laborers out of wages and defraud the public. The construction industry is rife with misclassification and other abusive practices. It costs states and the U.S. government billions of dollars in revenues; it preys on workers and can leaves them with no medical coverage when they are injured on the job.

The dodge is simple: Instead of listing employees as hourly workers, list them as independent contractors.

On paper, that shifts to them the responsibility for payroll taxes, on-the-job injuries and fair pay; it absolves the company of any obligation to pay overtime or the minimum hourly wage. It makes it easy to delay payment.

Unless a worker is genuinely his own boss, the practice violates federal and state law. Yet the U.S. Department of Labor has been remarkably lax in enforcing the law in the construction industry – especially among its own contractors.

The McClatchy special report, “Contract to Cheat,” is being published in this week’s editions of the News Tribune; the entire five-part series is posted on thenewstribune.com.

The case of Joshua Scott Lawson, a North Carolina construction worker, shows how unscrupulous companies victimize ordinary laborers.

Lawson, 29, worked long hours on building projects across his state, leaving his young family for days at a time. The company he thought was his employer paid him $10 an hour with no taxes withheld.

Eventually he found out that the company had listed him as an independent contractor and had paid no state or federal taxes on his behalf. He owed considerably more than he would have as a genuine hourly worker. He was responsible for all job-related expenses. He said he was clearing not much more than $200 a week for his wife and three children.

One day, he injured his shoulder trying to shield fellow workers from a bundle of falling two-by-fours. That’s when he discovered the company had not purchased workers compensation insurance for him.

The McClatchy investigation suggests that misclassification is almost a norm in some states. In Texas, a survey of 4,987 construction workers turned up 1,881 who had been misclassified – a rate of 37.7 percent. The State of Washington reportedly takes a much harder line on the practice.

McClatchy reporters Franco Ordonez and Mandy Locke found multiple ways to prevent predatory misclassification.

State and federal agencies, for example, could stop accepting payroll records that list people who aren’t themselves filing business tax forms. Workers who don’t know they are supposed to report themselves as independent contractors probably aren’t.

Governments could also stop awarding jobs to companies that have a history of tax evasion. Ordonez and Locke turned up a slew of repeat offenders who kept on landing lucrative contracts. By illegally lowering their payroll costs, cheaters are able to underbid honest companies.

The single most important measure is to care. Workplace abuses flourish in the absence of oversight. Washington, to its credit, goes beyond fines: It files criminal charges. Guilty verdicts and prison terms will give second thoughts to the most predatory employer.