Wage theft, which includes the misclassification of workers as "independent contractors," is a nationwide problem affecting millions and is especially widespread in the construction industry. When an employer treats a worker as an independent contractor rather than as an employee – despite the fact that the employer controls and directs how the worker performs his or her work and exercises financial control over the economic aspects of the worker's job – the employer is misclassifying the worker.
Disreputable contractors routinely misclassify workers to avoid paying payroll and Social Security taxes, workers’ compensation, unemployment insurance, Medicare, health and welfare pension contributions, as well as prevailing wage on public construction jobs. This illegal practice puts law-abiding employers at a competitive disadvantage. Paying workers in cash or “off the books” also deprives countless workers of their legal rights and cheats federal and state governments out of significant revenues.
Studies estimate that between 10% and 30% of all employers misclassify workers as independent contractors with devastating effects for the workers, reputable businesses, and the public good:
- Misclassified workers lose important workplace protections including minimum wage and overtime, access to unemployment insurance and workers’ compensation, employer contributions to Social Security and Medicare, ad coverage by civil rights and health and safety laws.
- Responsible employers who obey the law and pay their taxes can be underbid by competitors who misclassify their employees and thus lower their payroll costs by as much as 30%.
- The federal treasury loses approximately $3 billion a year in unpaid taxes due to misclassification. States also lose millions in revenues each year in unpaid taxes and unemployment insurance contributions.
The IU and BAC Locals/ADCs have worked hard to secure the enactment of stricter laws in several states. BAC and the AFL-CIO Building Trades affiliates continue to lobby Congress for national legislation to level the playing field for America's businesses, ensure workers are afforded the protections they are legally entitled to, and correct a serious tax loophole that allows some cheaters to evade the law.
On September 15th, 2014, the U.S. Department of Labor awarded $10.2 million ranging from $28,000 to $1.3 million to nearly two dozen states to stop worker misclassification and protect state unemployment insurance benefits.