Sheet metal & Air Conditioning Contractors’ National Association

Issue Briefs

Misclassification of Workers

POSITION:

SMACNA supports legislation that clarifies and tightens the current Internal Revenue Service process of determining the use of independent contractors and the independent contractor classification. SMACNA also opposes any legislation that protects unscrupulous employers who knowingly misclassify their workers or expands the definition of “independent contractor.” SMACNA urges Congress to support The Independent Contractor Proper Classification Act / The Taxpayer Responsibility, Accountability and Consistency Act when introduced in the 111th Congress.

BACKGROUND:

Misclassification is a serious and growing problem in the construction industry. Current law and weak enforcement actually protect employers who misclassify workers. Misclassification occurs when an employer improperly classifies an employee as an “independent contractor.” Misclassification allows the employer to avoid withholding and paying taxes and fringe benefits on the employee that would be required if correctly classified as an employee. This practice is prevalent in the open shop construction industry and is blatantly used as a cost-cutting tool to the detriment of workers and competing contractors as well as benefit programs at all levels dependent on employee withholding contributions.

KEY POINTS:

• Misclassification costs the government and the taxpayers, at all levels, substantial, uncollected revenues. Governments lose Social Security taxes, unemployment insurance taxes, and income taxes. Less revenue means less money that is available for vital federal, state and local services and programs.

• 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.

• The unionized sector maintains a system of apprenticeship training, health and welfare, pension benefits, and career advancement training that ensures an adequate supply of highly-skilled trade persons who are compensated and classified correctly as employees; allowing the misclassification of workers threatens to degrade the quality of workforce standards.

• Workers who should be classified as employees are cheated out of benefits, including employer social security contributions and fringe benefits that should be theirs.

STATUS: S. ____ The Independent Contractor Proper Classification Act, sponsored is awaiting introduction in the Senate. HR ____ The Taxpayer Responsibility, Accountability and Consistency Act, sponsored by Representative McDermott (D-WA) and others in recent Congressional sessions, is awaiting reintroduction.

Updated February 2009