New Orleans City Business, August 8, 2008, Friday
Copyright 2008 Dolan Media Newswires
New Orleans CityBusiness (New Orleans, LA)
SECTION: NEWS
HEADLINE: Construction industry feels pressure to properly classify workers
BYLINE: Garry Boulard
BODY:
In an industry well-known for having a large number of laborers coming and going, construction companies are being increasingly urged to make certain they properly classify everyone who works for them.
"It's a big problem," said Fred Kotler, associate director of the construction industry program at Cornell University's school of industrial and labor relations and one of the authors of a 2007 study saying more than 700,000 workers in New York state alone were misclassified.
"We've talked to labor unions on a regular basis that have told us about what can only be described as a massive misclassification in their trade," said Democratic state Sen. David Gottesman of New Hampshire, who has crafted legislation that will provide a legal definition for what it means to be an employee.
"The legislation in essence takes away the ability of employers to misclassify," said Gottesman.
According to the Cornell study, "The Cost of Worker Misclassification in New York State," the problem with misclassification is that it undercuts two entities crucial to the normal regulation of employer/employee relationships - the federal and state governments, which lose out on revenue from employee taxes - and the workers who become ineligible for unemployment insurance if they are laid off.
"That's how we find out about a lot of these questionable situations," said Jim Henry, director of the labor market information division with the Alabama Department of Industrial Relations.
"A worker gets laid off and comes in and files for non-employment insurance, and as part of that process someone will look at the wage record and find out that there is no record of this person's employment at all," said Henry.
"It has not been an overwhelming problem for us," said Kathy Waterbury,
communications director with the Mississippi State Tax Commission.
"But we did have several cases that concerned us after Katrina, because a lot of companies came in that were not registered with us to begin with, and a lot of transients came in to work during the recovery at this same time. "
"We have found through audits and our own field investigations that some of the construction companies were paying their employees in cash and others were claiming that their employers were contract workers when they were really employees," said Waterbury.
Misclassifying workers is "not really a state issue," said Byron Henderson, a press secretary for the Louisiana Department of Revenue.
"If the contractor reports the income paid on a Form 1099, then state tax is paid on it," Henderson said, citing the Tax Administration Division of the LDR.
"It is primarily a federal issue because the employee must withhold income taxes, withhold and pay Social Security and Medicare taxes and pay unemployment taxes on wages paid to an employee.
"Employers do not generally have to withhold or pay any taxes on payments to independent contractors. "
But the problem comes not in the form of pre-arranged company-independent contractor relationships but, rather, when a worker shifts from employee to independent contractor status without their knowledge, Gottesman said.
"It's all a matter of operating honestly and above board," said Gottesman. "If the employee assumes he is being classified as one thing and in fact the classification is for something else, that's wrong. "
Waterbury agreed.
"If we find out about such situations and are able to prove our case, the cost to the employer could be significant, both in terms of all the taxes that have gone unpaid, as well as any additional penalties. "
LOAD-DATE: August 9, 2008
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