The misclassification of workers is one of the building industry’s biggest problems and there are new efforts underway to address this challenge.
A new task force of state officials and industry representatives is looking for solutions and will present recommendations at the end of 2022.
“The current legislation that’s in place doesn’t have any teeth to it,” said Drew Simpson III, regional manager of the Eastern Atlantic States Regional Council of Carpenters.
He is one of four industry members of the Joint Task Force on Misclassification of Employees, which was formed last year. The others are Lance Claiborne of the General Business Contractors Association; Joanne Manganello of Laborers International Union of North America – Mid-Atlantic Regional Organizing Coalition; and Hank Butler of the Pennsylvania Aggregates and Concrete Association.
When unscrupulous construction firms misclassify workers – either by paying them as independent contractors instead of employees or paying them a laborer’s rate instead of prevailing wage – it undercuts legitimate contractors and costs the state tax revenue.
Simpson said illegitimate contractors can bid for jobs at as much as 30% less because they don’t pay the required workers compensation and other taxes.
In 2020, state officials found that 56 construction employers had misclassified 548 employees as independent contractors, representing more than $14 million in underreported wages.
Those figures don’t capture the full extent of the problem. Those reported were discovered by unemployment compensation tax audits, according to the Pennsylvania Department of Labor & Industry’s most-recent report.
The Eastern Atlantic States Regional Council of Carpenters has worked hard to expose the problem of this underground economy of construction owners, developers, and general contractors that hire companies that use labor brokers to supply workers to projects.
In western Pennsylvania for example, the Carpenters estimate the share of work by the underground workforce was 15 percent in 2019. If that share of the workforce were to be undocumented for all trades in western Pennsylvania, more than 3,000 workers would be working in the industry without accountability.
“Misclassification of workers, wage theft, and construction industry tax fraud is sad and an all-too-common reality in the construction industry,” said William C. Sproule, Executive Secretary-Treasurer of the Eastern Atlantic States Regional Council of Carpenters. “It truly leaves everyone as a victim, as unscrupulous contractors and labor brokers prey on the most vulnerable in the industry so that they don’t have to pay their employees what they deserve or into the taxes that support Social Security, workers compensation, infrastructure investment, and our veterans. We as an industry must do better and our union will continue to speak out and take action on this issue.”
The Construction Workplace Misclassification Act is enforced by the Pennsylvania Department of Labor & Industry’s Bureau of Labor Law Compliance. It, however, has never received additional funding to administer the law. And its staff remains slim, with 28 investigators statewide, to enforce 13 workplace laws.
In 2020, the bureau found 64 contractors in violation. It collected fines totaling $324,229 (some of them from cases in previous years). The average fine was about $2,819, and many contractors were penalized less than $1,000.
Simpson said the penalties need to be more significant.
“It’s a slap on the wrist to somebody who’s doing it intentionally,” he said.
The 2020 caseload and fines were lower than in previous years due to the impact of the COVID-19 pandemic, as investigators made fewer visits to construction sites, according to the bureau’s annual report. From 2016 to 2019, there were an average of 192 investigations and $460,528 collected in fines.
The state has the authority to shut down a job site but has not initiated any shutdown cases since the law was enacted in 2011.
Criminal charges have been filed in a few recent cases.
In January, an investigation by the Pennsylvania Attorney General’s Office and the Delaware County District Attorney’s Office resulted in charges against four people.
They were charged with misclassification of workers, making false statements, theft, receiving stolen property and deceptive business practices related to an enterprise that authorities identified as G&R Drywall and Framing, LLC, in York County.
Authorities said the enterprise sourced workers for a large construction project in Delaware County and, in order to subvert employment requirements and protections, misclassified those individuals as independent subcontractors.
“We cannot tolerate business practices that ignore the legal requirements for contractors and engage in this kind of theft here in the commonwealth,” Attorney General Josh Shapiro said in a news release.
“The misclassification of employees as independent contractors harms everyone: the misclassified workers, who lose the rights and protections to which they are legally entitled; law-abiding contractors, who lose work to unscrupulous competitors who illegally game the labor market; and lastly, the general public, which loses out on tax revenue,” District Attorney Jack Stollsteimer said.
In March, Shapiro announced that Scott Good, a Centre County contractor, pleaded guilty to stealing employees’ wages for five years. He said the guilty plea was the result of an investigation that found Good underpaid workers on prevailing wage projects. The theft totaled more than $64,000 in wages and benefits, which will be paid back in restitution, Shapiro said.
“This guilty plea will help boost income for working Pennsylvanians and puts companies on notice that we will hold them accountable if they illegally underpay workers,” Shapiro said in a news release. “This kind of theft undercuts honest businesses and means thousands of people get less money than they are legally owed each and every payday. It’s wrong, it’s illegal, and my office is investigating wage theft to help everyone who has ever been cheated out of their full paycheck.”
Good was charged after a 21-month grand jury investigation prompted by allegations of theft of wages and benefits from employees on a $16 million public works project in Clearfield County for the Pennsylvania Department of Transportation in 2014, according to the news release. The grand jury found that Good intentionally failed to pay workers the required prevailing wage by directing journeyman electricians and plumbers to record portions of their work hours as lower-paid laborers.
A misclassified worker loses an estimated $6,000 in overtime pay, according to state Rep. John Galloway, whose legislation created the Joint Task Force on Misclassification of Employees.
And the state loses a significant amount in taxes, he said in a news release: $200 million or more a year in federal income taxes, $10 million in unemployment taxes, at least $15 million in income tax revenues and as much as $83 million in workers’ compensation premiums.
Complaints about misclassification of workers can be made to the Department of Labor & Industry through this online form.