With a sluggish economy, massive layoffs, and stubborn unemployment rates, it’s no surprise employment-related claims and lawsuits have skyrocketed in recent years. Wage and hour complaints top the list, jumping 15 percent from 2009 to 2010 according to Department of Labor estimates.
In the construction industry, the biggest target violation is the misclassification of workers as “independent contractors” rather than employees.
For the government, it’s a tax revenue issue.
Governments at all levels receive less in payroll taxes from independent contractors than they do from employees, so they’re getting tough on misclassifications. The DOL’s Wage and Hour Division has added 250 new field investigators to check for noncompliance, and the IRS and DOL have both stated their audit and enforcement activities will focus on identifying misclassified workers.
Texas takes aim at payroll fraud.
In Texas, two out of every five construction workers are wrongly classified as self-employed, according to "Build a Better Texas," a 2012 study by researchers at the Workers’ Defense Project and faculty at the University of Texas at Austin. The study uncovered an institutionalized pattern of misclassification of workers and found that many workers don’t understand their rights under Texas law and are being exploited. Gov. Rick Perry recently signed a new law aimed at cracking down on payroll fraud, adding penalties for construction companies who misclassify workers.
And the stakes are getting higher. In 2014 and beyond, employers also have to contend with:
- Minimum wage increases. Many jurisdictions plan to raise their minimum wages above the federal FLSA $7.25 per hour level in 2014.
- Affordable Care Act. A worker who is misclassified can bring a claim against – and trigger an ACA penalty for – an employer who doesn’t offer essential health care coverage if the worker is ultimately determined to be an employee. This means an employer could face crushing medical bills if the worker has a catastrophic accident or serious illness.
How do you protect your business?
While you can’t eliminate your exposure altogether, you can lower it by understanding the law and your responsibilities, and properly protecting your assets. Assess your current pay practices. Take a hard look at your current independent contractors and check these resources to make sure your workers are properly classified:
Wage and hour lawsuits are a growing financial threat to construction business owners. Let the experts at Higginbotham help protect your business while controlling your insurance costs through better safety and risk management practices.
Want more risk management information? Learn about our construction insurance program.