Masonry Magazine May 2007 Page. 10
Government Affairs
MCAA Testifies Before
Congress
Jessica Johnson Bennett, Director of Government Affairs. Mason Contractors Association of America
Unfortunately, some unscrupulous contractors around the country are misclassifying their workers as "independent contractors" in an effort to cut costs. This illegal practice is leaving honest, law abiding contractors at a huge competitive disadvantage.
On March 27, the House Education and Labor subcommittee held a hearing on this crucial matter. In her opening statement, Rep. Lynn Woolsey (D-CA), chairwoman of the subcommittee, stated, "The practice hurts everyone: workers who are not afforded the protection of labor laws; honest contractors who can't compete with contractors who misclassify their workers in order to lower their costs; and all of society, as state and federal governments lose millions of dollars in revenue each year."
Woolsey continued: "The U.S. Department of Labor has stated that the number-one factor for employers in misclassifying workers is the desire to avoid paying workers' compensation premiums and to otherwise avoid workplace injury and disability disputes."
The construction industry has faced this problem for years, however, recently this problem has reached epic proportions. Contractors who are intentionally misclassifying their workers as independent contractors avoid payments to the state workers' compensation fund, unemployment insurance and Medicare.
Cliff Horn, president of A. Horn Inc., testified before the subcommittee on behalf of the Mason Contractors Association of America (MCAA) regarding the impact this illegal practice is having on the masonry industry, as well as the construction industry as a whole. During his testimony, Horn told the subcommittee, "Businesses that misclassify employees as independent contractors can expect to reduce their labor costs between 15 to 30 percent. This places contractors like myself at a competitive disadvantage in an industry with 20-percent gross margins.
"The misclassification of workers has impacted my business, and is impacting the construction industry at the local, state and federal level," Horn continued.
During his testimony, Horn also highlighted the fact that there are legitimate, independent contractors in the construction industry and that "it was not his intention to undermine those sole proprietorships and small businesses."
"The problem is the intentional misclassification of individuals who are in fact employees, but are classified as independent contractors by unscrupulous employers," Horn said.
John Flynn, president of the International Union of Bricklayers and Allied Crafts (BAC) also testified before the subcommittee. Flynn commented in his testimony that "by misclassifying employees as independent contractors, unscrupulous employers avoid labor and employment laws, prevailing wage laws, and other legislation intended to ensure that workers are dealt with in a fair and equitable manner."
The Subcommittee on Workforce Protections determined this issue was worthy of Congressional action after numerous problems began appearing across the country. In Illinois, where Horn's company is based, state and federal agencies are investigating allegations that some Chicago area construction companies are deliberately misclassifying workers as independent contractors, illegally boosting company profits and depriving the state and federal government of millions of dollars in tax revenue.
The University of Missouri-Kansas City's Department of Economics recently released a report estimating that, in Illinois, $124.7 million in income tax was lost annually from 2001 through 2005, and $8.9 million a year was lost in the construction sector alone because of misclassification. The report also estimated that, on average, $95.9 million annually of workers' compensation premiums went unpaid for misclassified workers - it is estimated that construction industry employers accounted for $23.2 million of this amount.
Horn also demonstrated in his testimony that, in addition to depriving