Phone: 901-278-7288

Sheet Metal Worker Local 4
National Day of Action on Wage Theft
Updated On: Nov 18, 2010

Misclassified Workers

 One of the ways that many construction workers experience wage theft is being told they are independent contractors, and not employees. We call this misclassification, and it's a growing problem.  But what is an independent contractor?

The general rule, according to the IRS, is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.  In other words, here is what needs to be done and it’s up to you how it will be done.  In most cases a contract between the parties is used.  

In 2008 an employee of Warner Construction (a local company) filed IRS Form SS-8 which launched an investigation to determine if the worker was in fact an employee or as the company claimed, an independent contractor.  The IRS ruled that the worker was an employee because there was no written contract between the parties and that the company determined the methods by which he completed the task assigned to him. 

Every year these crimes are being committed by companies classifying their employees as independent contractors.  It’s not just in Tennessee, but all over America.  This abuse leads to billions of dollars lost in government revenues, according to the IRS. This is money that could be used for healthcare, roads, and the schools our children attend. 

Workers being paid as 1099 independent contractors or having paychecks replaced with cash is a growing crime and because of that, responsible employers are left with a huge disadvantage in a competitive market.  Studies show that companies misclassifying their employees can cut labor costs by 2% by avoiding unemployment insurance premiums and by classifying them as independent contractors, can cut labor costs by 20% to 40% by avoiding all payroll taxes. 

Another way workers are being misclassified is by the type of services they perform for a company on prevailing wage construction projects.  These projects are funded by tax dollars which require companies to pay the area prevailing rate for the trade of work being performed, such as sheet metal work iron work, and so on.  Companies will try to avoid paying the prevailing rate by classifying the workers as laborers instead of journeymen tradesmen and, in some cases, make the employee pay back the difference between the prevailing rate and his normal pay.

Low pay, no pay, no overtime pay, no health benefits, no pension plan, no sick days, no vacation days, no workers compensation for on the job injuries, lack of safety, and no training; each of these reductions result in a savings in labor costs for businesses that misclassify their employees.  They avoid mandated taxes, wages, and various benefit programs that would enhance the quality of life for their employees. 

So what can be done?  Our members of Congress can do something about the growing problem of misclassifying workers. The Fair Playing Field Act was introduced this fall in Congress, to close tax loopholes that make it easier for employers to misclassify workers. We urge all our Mid-South members of Congress to co-sponsor this legislation and to enforce current laws so that workers get the wages they deserve, government gets the tax revenue it needs, and so that all business compete on a level playing field.

 


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