Construction Worker Misclassification

Although many individuals may not know it, there’s a critical distinction between an employee and an independent contractor. Even so, classifying construction workers as independent contractors rather than employees is prevalent nationwide. The practice is more common in certain areas and poses challenges for misclassified workers and local governments.

Who Is an Independent Contractor?

The ABC test helps determine whether a worker is an employee or an independent contractor. These points include:

• A: Ind
  ependent contractors do their work under their own direction and control. 
• B: The independent contractor’s work is outside the primary scope of the business they serve.
• C: Independent contractors are often self-employed individuals, another entity, or a tradesperson.

Examples of independent contractors can include accountants, physicians, and attorneys.

If you need guidance correctly classifying a working relationship, contact a legal specialist at Calabrese Law Associates.

Why Is Misclassification of Construction Workers an Issue? 

Studies show as many as 30% of workers are misclassified as independent contractors, sometimes intentionally. As a result, these workers don’t receive minimum wage, overtime, or Workers’ Compensation protections. They may also jeopardize their access to future benefits and increase the displacement of employees by providing less expensive labor sources.

Some employers see financial rewards by misclassifying their employees, including:

• They often don’t supply benefits or insurance, lowering their overall job bids by as much as 25%.
• They can realize up to 50% of savings on their payroll costs.

For local and state governments, the issue culminates in billions of dollars going untaxed, leading to lower tax revenues.

Areas Where Misclassification Is Most Common

Over the last 15 years, several states have conducted studies about construction industry employee misclassification. Their estimates ranged from a low of 11.4% in Massachusetts to 37.7% in Texas. North Carolina came in at 35.2%, followed by California at 19% and Florida at 15.5%.

A 2017 study of misclassification revealed Southern cities tend to have more issues. These include Houston and Miami at 38% and Charlotte, North Carolina, at 17%.

Challenges of Controlling Construction Worker Misclassification in the Southern Regions

There are unique challenges to controlling misclassification in these regions, including:

• There is less unionization: These areas have the least union membership rates countrywide.
• There are limited resources: State and local governments have fewer resources to enforce compliance.
• There is more access to immigrant labor: Immigrants may often have fewer protections.

States Taking Action

Several states, including New York and Massachusetts, are becoming more assertive with enforcement. 

Legislation in New York includes financial and criminal penalties for intentional misclassification. The law also requires employers to post misclassification notices in the workplace.

Massachusetts follows the ABC test, and the state codified it in 2004, declaring all workers employees unless a business has contradicting proof. There is no leniency for accidental misclassification.

In 2019, New Jersey and California also began pursuing stricter laws, possibly spurred by previous results. These include Washington, which recovered $7 for each enforcement dollar spent, and New York, which recovered over $8 million in unemployment compensation insurance.

The gig economy has also recently come under examination. Almost a third of adults participated in it in 2018, including those driving for ride-hailing companies. These businesses made news in 2019 as they fought inclusion under new independent contractor regulations in California.

Tips for Staying Compliant

Three actions that can help you prevent misclassification include:

1. A benchmark test: Measure your actions against known standards like the ABC test.
2. Due diligence: Ensure you work with businesses committed to following best practices.
3. Local expertise: Partner with seasoned professionals who know the local laws. 

Consult With Calabrese Law Associates in the Greater Boston Area

Calabrese Law Associates boasts an experienced team of trial attorneys with specialized practice areas, including construction law. Our mission is to deliver industry-leading legal representation in the Greater Boston area as a trusted partner for our clients. Call 617-340-6623 or connect with an expert attorney online to request your free consultation.

This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.

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