Are companies padding their bottom line by misclassifying workers as independent contractors? Texas State Representative Senfronia Thompson (D-Houston) says this technique is used quite often, especially by construction companies. She alleges they misclassify illegal immigrants so they don’t have to fill out the mandatory I-9 forms to prove an employee is legally allowed to work in the United States.
Why go through the trouble? It’s all about the bottom line. Illegal workers get paid less and the employer avoids additional costs like payroll taxes, unemployment tax and worker’s compensation. If you are not paying all of these extra costs you can put in a lower bid and push right by your competition as you get awarded jobs.
Experts in the field say companies that use misclassification to skirt the law can cut their labor costs by as much as 30 percent, but the societal costs can be huge. Not only do honest business people lose out on contracts, but the cheating companies don’t pay payroll taxes or health insurance. Construction is a dangerous business and these workers often end up in the emergency room on the taxpayer’s dime.
This loophole goes back the Revenue Act of 1978 which allows companies to identify these workers as independent contractors for tax purposes only. Now the big issue is that these jobs are a magnet for illegal immigrant workers. Again, if they are an independent contractor, the employer doesn’t have to turn in that I-9 form.
Bills have been presented on the federal level to close the loophole, but both the House and Senate versions keep getting stuck in committee. The Texas effort would create penalties from $100 to $1000 for each employee that is not properly classified. It is expected to be brought up during the 2015 Legislative Session.
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