In a recent letter to the House, SMACNA has expressed its support for H.R. 5008, The Clarify Worker Misclassification in the Construction Industry Act of 2016, introduced by Representatives Tom MacArthur (R-NJ) and Ron Kind (D-WI). SMACNA strongly supports H.R. 5008, legislation to address employee misclassification in the construction industry. Without interfering with the use of legitimate independent contractors or increasing penalties, the bill would give Treasury more authority under Section 530 to increase efforts to identify and reduce misclassification, to address tax evasion and increase tax compliance. Misclassification also costs the government and the taxpayers, at all levels, substantial, uncollected revenues.
Misclassification is a well-documented and widely acknowledged to be epidemic in the construction industry and is blatantly used as a cost-cutting tool to the detriment of workers and competing lawful contractors. Employers who misclassify their workers reap substantial savings and gain unfair competitive marketplace advantages by avoiding payment of Social Security and Medicare taxes, payment of federal and state unemployment insurance taxes, and payment of workers’ compensation premiums. An employer-employee relationship generally exists when the person for whom the services being provided has direction and control over the person performing the work. Yet because of the “common industry practice” safe harbor in Section 530, the IRS currently is unable to enforce tax law where misclassification is involved.
SMACNA employers contribute to employee economic security and fully comply with all workforce protections and legal requirements. Ethical employers too often compete in both the public and private market against unscrupulous employers who deliberately misclassify their workers as independent contractors and who otherwise do not fully comply with federal and state laws and regulations. The practice hurts lawful construction employers, working families, and federal, state and local governments which lose significant tax revenues as employee withholding laws are evaded.
Important legal obligations including prevailing wage, workers’ compensation, EEO, family and medical leave, overtime, unemployment compensation, minimum wage, Medicare and other labor and employment law adhered to by lawful contractors are irrelevant to the employers misclassifying workers. Even worse, employees misclassified as independent contractors are left without the benefit of economic, workforce and legal protections to which they are fully entitled.
In today’s economy, good paying jobs with healthcare and related benefits are already scarce in construction and other industries. However, workers classified as independent contractors are even less likely to receive any type of health and pension benefits, including workers’ compensation should they be injured on the job. They are burdened with paying the full portion of Social Security and Medicare taxes yet numerous reports document that they are not making these payments, assuming they are employees and that their employee contributions are being made by the employer. Often these misclassified workers are unaware of the employment laws altogether for a variety of reasons ranging from language difficulties, workplace inexperience and many others.
SMACNA supports, without reservation, H.R. 5008 and its long overdue goal to narrowly reform Section 530 of the tax code and eliminate the ability of construction industry employers (only) to rely on industry practice as a basis for “safe harbor” for those intentionally misclassifying employees as independent contractors. For decades SMACNA member firms have called for Congressional action to strictly limit the abuse of independent contractor status and willful misclassification of employees.