SMACNA is particularly interested in commenting on the enhancement, quality, utility and clarity of the information to be collected under the Davis-Bacon Act. It has come to SMACNA’s attention that agencies receive Davis - Bacon Certified Payroll forms that indicate employers made payments to individuals who “pay their own taxes” or otherwise are listed as “independent contractors” for construction work on an hourly basis.SMACNA National would advocate that the Department of Labor Wage and Hour Division update Davis Bacon Act record-keeping in ways that would help identify contractors who misclassify workers or otherwise commit payroll fraud on federal/federally assisted work.
The contracting agencies, including the Department of Labor, in examining Certified Payrolls should “red flag” forms that include payments to workers for whom no FICA, Withholding or other deductions are included and on forms where the contractor includes information that the worker was an independent contractor or otherwise pays his or her own taxes. The reporting forms and regulations should require more information on those particular workers and should require that 1099s to those workers be maintained in the record for three years as is required for the Certified Payroll forms. Training sessions for contracting agency staff should include information about misclassification and other forms of payroll fraud.
Unfair and abusive employment practices are widely acknowledged by public policy experts to be epidemic in the construction industry. Construction projects are temporary by nature, engage multiple levels of contractors and subcontractors, and employ a highly mobile workforce, all of which combine to make the industry especially vulnerable to abuse. Ever-evolving schemes give unscrupulous employers a huge advantage in a highly competitive, head-to-head bid industry.
Study after study shows that a significant portion of construction employers misclassify their employees as independent contractors. The result is that federal, state and local governments lose millions, if not billions, of dollars annually. The result is also that lawfully compliant contractors are put at an unfair competitive advantage by contractors who are willing to cheat or game the system. The U.S. Department of Labor and the Obama Administration have noted the increasing trend in this practice and the Department of Labor itself has expanded its investigation and enforcement efforts to stem the practice so updating the payroll reporting forms would seem a logical extension of their efforts.
SMACNA National believes that stronger Davis-Bacon reporting requirements are needed to stop the misclassification of workers because businesses that avoid properly classifying workers as employees do not have to pay unemployment insurance taxes, workers’ compensation premiums, or the employer’s portion of Social Security and Medicare taxes.
When a contractor performs federal or federally assisted work, there should be increased due diligence by all agencies to ensure contractors are following all federal laws. Therefore, we believe there should be increased scrutiny of Certified Payroll forms by all agencies, including DOL, to include closer examination of construction companies that include independent contractors in their payroll certifications. Cracking down on payroll fraud and misclassification of workers at every level is a step towards stopping the unlawful anti-competitive practices by unscrupulous employers that make legitimate contractors less competitive in the public and private marketplace.
It is worth noting that unscrupulous employers are deliberately trying to avoid tax and employment requirements by stretching the law in creative ways. No longer do they simply misclassify employees as independent contractors. Scofflaw companies in construction and other industries employ techniques such as using labor brokers, forming LLCs so that employees become owners filing not a 1099 but a K1, establishing elaborate check cashing schemes, and illegally requiring workers to purchase a shell franchise. The government needs to be likewise creative to stem the unlawful practices. Therefore it is even more important that Davis-Bacon form requirements be updated to increase the utility of the reports.