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'Worker misclassification' seen as growing threat by contractors, unions in the Region

  • admin
  • 11 September 2017

Andrew Steele andrew.steele@nwi.com, 219-933-3241
Sep 3, 2017 Updated Sep 8, 2017

As companies strive to increase profits amid a changing economy and consumer habits, the discussion often centers on challenges posed by the "gig economy" and its impact on work and employment.

Upstart companies like the Uber ride-sharing service tend to be the focus of concern; recent reports of such companies' drivers speaking out against perceived company efforts to trim their pay bear this out.

Online story on NWI Times

But the growing use of short-term contracts in industries such as construction is threatening traditional employment in a way some say has reached a critical phase.

The fight is over what's commonly called "employee misclassification" — or payroll fraud, in the view of unions and contractors. It involves an employer hiring workers as freelancing contractors who should be full-time employees, thereby allowing the employer to avoid paying payroll taxes, and worker's compensation and unemployment insurance premiums, among other costs.

"It's a problem that's been around for many decades," said Dewey Pearman, executive director of the Construction Advancement Foundation of Northwest Indiana. "But it's becoming epidemic."

Officials with the Indiana/Kentucky/Ohio Regional Council of Carpenters visit job sites frequently to talk to carpenters, said Scott Cooley, senior representative at the union's local headquarters. He said he often talks to contract workers who he believes should be formal employees.

"We run into it all the time," Cooley said. "It's just a regular occurrence."

Some workers in question receive a federal 1099 form at the end of the year, but others aren't reported at all, and are just paid cash for their work.

'No magic' in defining employment

Classifying employees properly isn't an exact science. It involves several variables, including the degree of company control over the employee; the financial arrangement, including who provides tools and supplies; whether there are benefits such as a pension and insurance; and whether work performed is a key component of the business' activity.

 

The Internal Revenue Service lists 20 factors to consider, and states in its guidance on the matter that "there is no 'magic' or set number of factors that 'makes' the worker an employee or an independent contractor."

But contractors and the carpenters' union say some building projects are rife with contract workers who clearly are misclassified: their hours and duties are assigned by their employer, their tools and supplies are provided, and their work is a core function of the company — all factors that generally make one an employee, not a contract worker, in the eyes of the law.

Quantifying the problem

A 2010 study commissioned by the Indiana Building & Construction Trades Council and the Indiana, Illinois, Iowa Foundation for Fair Contracting argued that a company's use of these workers gives employers who use the practice a decided, but unfair, competitive advantage.

The report, by economists from the University of Missouri-Kansas City, estimated 72,299 employers, 8,052 of them in construction, had misclassified employees in 2008. It said 15.3 percent of employees were misclassified, totaling 377,742 workers, of whom 24,323 were in construction.

The practice also has implications for governments at all levels, the study found. For the state in 2008, $30.4 million in unemployment insurance taxes were lost, $2 million of that from the construction industry.

Between $134.8 million and $224.6 million of income tax revenue went unpaid, with $10.6 million from the construction industry.

Local income tax losses statewide totaled $91.2 million, $7.2 million of that from the construction industry, according to the study. Also, $26.3 million of worker's compensation premiums were not properly paid, with $4.6 million of that from construction, according to the report.

Ultimately, the University of Missouri report estimated the costs to the state of Indiana, at a high end, of about $406 million annually.

But a precise evaluation of the cost to government is elusive. Several state agencies charged by the state's Pension Management Oversight Commission with doing a study of their own in 2010 disputed the methodology and assumptions of the university study.

They estimated 8 percent of workers, not 15.3 percent, are misclassified, and that the state loses $14 million to $20 million annually in tax revenue, "of which (the Department of Revenue) could be expected to recover a substantial portion."

The report, by the state departments of Workforce Development, Labor and Revenue and the Workers' Compensation Board, also questioned the impact on the workers' compensation and unemployment insurance system.

Finally, the report's writers argue that misclassification often is an innocent misunderstanding of the law. "Heavy-handed penalties will have little impact on these employers," the report concluded.

But contractors and unions dispute these conclusions, saying the effect on their work is clear and stronger enforcement is key. When a state legislative study committee investigated the issue last year, more than 40 contractors wrote letters contending that the misclassification problem has grown to the point that it threatens the viability of construction companies that abide by the rules.

The companies included Northwest Indiana's Berglund, Gough, Larson-Danielson, Precision, Prodigy, Solid Platforms, Specialty, Superior, and Pangere.

Misclassification "gives cheating contractors a 30 percent advantage in bidding, undermining the legitimate contracting community through low-ball bids that do not represent the cost of conducting lawful business," wrote Timothy Larson, president of Larson-Danielson Construction Co.

Enforcement elusive?

The carpenters' union recently had success when it filed a complaint with the National Labor Relations Board regarding a LaPorte hotel under construction. The complaint alleged that misclassification of workers impeded their ability to act collectively and form, or join, a union.

The complaint resulted in a settlement requiring the contractor to reclassify the employees and to inform them of their rights under federal law. But union officials called that settlement "a slap on the wrist" and, along with the contractors, have urged greater enforcement.

"There are laws on the books right now; the problem is they're not enforced," Cooley, of the tri-state carpenters' council, said.

Efforts on the state level have included a law that took effect in 2010 requiring the Labor, Workforce Development and Revenue departments, along with the Worker's Compensation Board, to share information on possible worker misclassification in the construction business.

The state also maintains an email address to receive tips, wagehour@dol.in.gov.

But further efforts to bolster enforcement have met with resistance, according to the state senator behind a bill proposed in the last session.

"We've got all these different departments, and they're supposed to share this information, but it doesn't always happen," said Sen. Karen Tallian, D-Ogden Dunes.

Tallian authored a law that would have created a Payroll Fraud Task Force made up of representatives of the four state agencies. The law would have required hiring an investigator dedicated to investigation and enforcement. The bill had one committee hearing but never received a vote.

"We recognize there's a problem. We just don't know how big the problem is, and we don't know for sure how to fix it," said the Pensions and Labor Committee chairman, Crawfordsville Republican Phil Boots, when he concluded the Feb. 1 committee hearing on it.

Tallian said the state government has downplayed the problem and the state agencies' potential to address it.

"It keeps getting worse," Tallian said. "This bill will be filed again. We're going to keep pushing it."

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CSCRC Relief Fund is Accepting Donations to Help Our Members in Texas

  • admin
  • 30 August 2017

Central South's Local 551 - the largest Local in our Council - sits in the heart of this historic natural disaster still unfolding in Texas.

The CSCRC Relief Fund is activated and is accepting donations so that we can get aid to our brothers and sisters who have been devastated by Hurricane Harvey and the 500-year flood that it caused.

If you can, please consider donating. Make your check out to CSCRC Relief Fund and mail it to: CSCRC Relief Fund, 2850 Massachusetts Avenue, Metairie, LA 70003. For more information, visit their page at http://www.centralsouthcarpenters.org/

Thank you!

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Megan Walkowiak Receives Appreciation Award from Carpenters Local 435

  • admin
  • 23 August 2017

The Indiana Kentucky Ohio Regional Council of Carpenters (IKORCC) selected Megan Walkowiak from Carpenters Local 435 to represent the Early Intervention Committee's motto for, “Contractor, Community, Customer”, during the summer conference. She is a 3rd generation carpenter. Her grandfather, Benny Sroka (deceased), was an Honorary 65 year member, and her father, Dave Walkowiak, is a 39 year member. 

Like most young adults graduating high school, Megan had ambitions. She decided to pursue a bachelor’s degree in business management, with a minor in human resources. After entering the world of nine-to-five, she decided being behind a desk wasn’t for her. Instead, she wanted to pursue a career as a contractor. She approached her father about joining the carpenters union and he insisted she had to go through the apprenticeship program.

While going through her apprenticeship, Megan excelled and started to stand out as a leader. During the third year of her apprenticeship, Megan was chosen to go to the International Training Center (ITC) in Las Vegas, Nevada. Upon her return, she immediately applied the skills she learned from her training. Megan began to mentor other women in the trade and started giving back to the community. Megan stated that one of her favorite volunteer projects was reroofing a house for a needy family whose child had cerebral palsy.

Megan was appointed as Chairperson for Locals’ 435 and 373 Sisters in the Brotherhood (S.I.B.) Committee, where she conducts monthly meetings and continually inspires women to excel with their contractors, community, and customers. Recently, Megan was awarded a plaque of appreciation for all the work she has done. The plaque was presented to her at the August 8, 2017, Carpenters Local 435 Union meeting. Her father, along with her UBC sisters from Carpenters Locals 435 and 373, were in attendance to witness her accepting the award. The award was presented to her by the officers of Carpenters Local 435, several IKORCC representatives, and a special appearance by Teresa Moore, the IKORCC S.I.B. chairperson.

It is an honor to have this young lady go from an apprentice, journeyman, to newly a signatory contractor for our organization. The IKORCC looks forward to seeing great things come from her in the future and wishes her the best in her career!

Earn While You Learn

  • admin
  • 10 August 2017

Did you know that the IKORCC Apprenticeship Program pays you to learn and allows you to graduate debt-free with an associate degree from Cuyahoga (Tri-C), Ivy Tech, or Owens community college? With thousands of apprentices and hundreds of thousands of hours of training per year, our three state apprenticeship is leading the way against the competition. Learn more about the IKORCC Apprenticeship Program by contacting your local IKORCC office or by emailing website@ikorcc.com

8 Hour Awareness Classes Going Strong!

  • admin
  • 09 August 2017

IKORCC teaches an 8 hour ICRA classes throughout our region. This is an awareness class for hospital and indusutry firms to demonstrate the best ways to continue preventing infection during hospital construction. Here is Ron Clements teaching an 8hr ICRA class at Goshen Hospital in Goshen, IN for the infection control Dept, plant ops, and I.T dept. 

Trump announces $200M apprenticeship initiative

  • admin
  • 16 June 2017

AUTHOR
Kim Slowey@kimslowey

PUBLISHED
June 16, 2017

Dive Brief:

  • President Donald Trump signed an executive order on Thursday that will increase apprenticeship funding to $200 million and give the private sector more influence in designing apprenticeship programs, with the unofficial goal of creating 5 million apprenticeships in the next five years, according to the Associated Press. 

  • Last year, according to the Department of Labor, apprenticeships totaled a little more than 500,000, with roughly 50% of those in the construction industry.

  • The funding for Trump's plan would come from existing DOL job training funds, but critics point out that Trump's proposed 2018 budget would cut the DOL's training and employment services by 21%, according to Time, as well as other workforce programs. The budget also cuts $1 million in women's training programs, but the administration said that will be made up in this broader apprenticeship initiative.
     

Dive Insight:  

The Associated Builders and Contractors lauded the announcement Thursday and said the measures outlined in the executive order would help the construction industry with skills training and help eliminate a 500,000-worker shortage.   

One controversial aspect of the executive order is the fact that Trump does not require apprenticeship programs to be registered with the DOL, which currently sets program parameters and certifies them to make sure they're in compliance and provide quality training and education. Oversight of unregistered programs, critics say, could result in some sham offerings.

Administration officials said there are unique training requirements for each industry, and the private sector could be better positioned than the DOL to develop industry-specific apprenticeship programs.

If the program is successful in creating more skilled workers, it would certainly come as a welcome relief to the construction industry. According to an Associated General Contractors of America survey, 73% of companies anticipate hiring new workers this year, but 73% also said they anticipate difficulty in doing so.

Earlier this month, when the president revealed more details about his $1 trillion infrastructure plan, he said he wanted to create at least 1 million new apprenticeship positions in the next two years. This, as well as the order, was most likely in response to industry concerns about how such an ambitious program would further stress the limited skilled-labor pool. 

Contractor at University of Tennessee Project to Pay Over $300K for Hiding Payroll

  • admin
  • 07 June 2017

Mid-South Regional Council of Carpenters:

A contractor working on the University of Tennessee’s Strong Hall construction project will pay more than $300,000 in fines for labor violations. 

JAC Jack Construction LLC, a Knoxville-based labor provider, has agreed to pay a penalty of $336,987 assessed by the Tennessee Department of Labor Bureau of Workers’ Compensation (BWC).

The penalty is based on over a year’s worth of work at the University, where labor was provided for Proffitt & Sons, Inc.

In the settlement agreement, JAC Jack “understated or concealed …[its]…payroll, number of employees and/or appropriate classification of employees in an effort to avoid payment of proper workers’ compensation insurance premiums.”

Read the settlement agreement, below.

The Mid-South Carpenters Regional Council consistently tries to prevent this type of payroll fraud by calling attention to the problem. Here’s a background article about the effort surrounding JAC Jack and the UT project, and why it’s so dangerous to a community.

“Those workers were exploited, immigrant labor,” said Mike Boner, executive secretary-treasurer of the Regional Council.

Many contractors in Tennessee, such as Proffitt & Sons, get most of their workers from labor brokers.

“These labor providers aren’t name-brand companies,” said Boner. “They’re usually a guy with a cell phone that can round up dozens or even hundreds of workers. Then the labor brokers pay the workers off the books. We call that ‘payroll fraud.’”

The use of labor brokers is a serious problem in the construction industry because workers lose important workplace protections like workers’ compensation benefits, unemployment insurance and overtime. In addition, employment taxes for Social Security and Medicare are not paid.  That enables the cheating contractor to underbid law-abiding businesses by up to 30 percent.

“All of this cheating hurts every one of us by driving down our wages and driving up our taxes and insurance costs,” said Boner. “The fine from the BWC is large and should be a warning to all of the other companies out there who use the same practices.”

File: JAC Jack Settlement TNBWC 3-10-17.pdf

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IKORCC Stands Against Wage Discrimination

  • admin
  • 24 May 2017

Posted: May 24, 2017 11:03 AM EDT
Updated: May 24, 2017 3:37 PM EDT

By Chris Otts

LOUISVILLE, Ky. (WDRB) -- About 100 construction workers helping to build the Omni Hotel downtown walked off the job early Wednesday.

The workers, almost all of whom are Latino immigrants, said they recently discovered they're being paid less than others on the project. They hang and finish drywall and install metal studs, they said.

"We are the only one underpaid on this job," said Marco Cruz, who described himself as a safety worker. "Everyone else is making like $40-$45 an hour and we're doing like $20 an hour. So we feel like we were discriminated by our gender, our race, and that's what we're demanding, just fair salaries."

David Suetholz, a labor attorney helping the workers, said it's their right under federal law to come together and demand a conversation with their employer about their wages. 

"They are the only workers -- the only workers -- on this project that are being paid a residential rate," Suetholz said. "Every other classification of workers on this project are being paid commercial rates, and it's my sneaking suspicion it's because they're immigrants."

A spokeswoman for the Omni project did not immediately return a call. Neither did a spokeswoman for Brasfield & Gorrie, the general contractor.

Antonio Ramos, a business representative with the Indiana-Kentucky-Ohio Regional Council of Carpenters Local 175, said the workers are employed by subcontractors called PCC and PDC, which WDRB could not immediately verify.

The workers are not organized by the carpenters union, but Ramos said the union supports them.

Suetholz said he assumes the workers have legal status in the United States because employers are required to verify that.

"As an advocate for working people, it’s none of my concern because I want these people to be treated the same way everyone else on this project should be treated," he said.

About half the cost of the $289 million hotel and apartment building is being picked up by city and state taxpayers through a special taxing district.

Louisville Mayor Greg Fischer has said the construction workers on the project would be paid the same "prevailing wages" the state has set for publicly funded construction projects.

The Republican-led state legislature repealed the prevailing wage requirements in January, but the new law applies only to projects that were not already in the works. 

Copyright 2017 WDRB Media. All rights reserved

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Rossford Open House Competition Winners

  • admin
  • 18 May 2017

Congratuations to our 2017 Rossford, Ohio winners! 

 

View more photos from the event!

Richfield Open House Competition Winners

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  • 18 May 2017

Congratuations to our 2017 Richfield, Ohio winners!

 

Check out more photos from the event!

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