March 2013

Misclassification: Two Meanings: By Trade But Also Fake 1099 Status

It's too common for rogue contractors to misclassify their workers on their certified payroll records as "laborers." This is a mask to cover that they are underpaying the mandated wage determination for that project, which by definition includes ironworker. The bidding of the fair contractors who follow the law rightly factors in the cost of trade classification of the workers they will use. But the cheater (in advance) schemes to take the low road in bidding--as if no ironworkers would be employed.

Even a project's wage determination sheet with a missing ironworker classification requires the contractor on the project to file to have that trade added to the project. This happens when a trade fails to submit any data during a wage survey. The "conformed" rate usually won't be a union-based rate, but it will represent that craft and also be pegged to the skilled trades already on the wage sheet. This is what is called a Form SF1444 "conformance" procedure--and the DOL requires it.

Virtually all the skilled trades suffer from this ability of bottom-rung contractors to call their tradesmen "laborers" in order to dodge paying them properly. It's a law-breaking practice that can eventually trip them up when some basic compliance work is done. On top of that, this blatant misclassification serves to further aggravate the jurisdictional integrity of the trades.

But another form of "misclassification" we often hear about (even outside of construction) is costing the economy big time in tax revenues and exploitation of workers. It also deprives the funding of new infrastructure projects and the jobs they produce. The U.S. Department of Labor's Wage and Hour Division (WHD) recently made the following announcement from their Washington, D.C. headquarters:

"The WHD and Iowa Workforce Development have signed a memorandum of understanding to protect the rights of employees by preventing their misclassification as independent contractors by employers."

Acting deputy administrator of the WHD, Mary Beth Maxwell, made the move to protect the rights of employees and level the playing field for responsible employers. "We're standing united to end the practice of misclassifying employees," said Maxwell. "This is an important step toward making sure that the American dream is still available for employees and responsible employers alike," she added.

Since September 2011, when the WHD began entering into memorandums of understanding with states (now 14 in total) and announced a similar partnership with the Internal Revenue Service, the division has collected $9.5 million in back wages for more than 11,400 workers where the primary reason for minimum wage or overtime violations under the Fair Labor Standards Act was that workers were not treated or classified as employees. These figures represent an 80 percent increase in back wages and a 50 percent increase in the number of workers receiving back wages following the implementation of these agreements.

The misclassification results in a workforce often denied access to critical benefits and protections--such as overtime compensation; minimum wage pay; unemployment insurance; or family and medical leave, to which they are entitled.

In addition, misclassification can create economic pressure for law-abiding business owners, who often find it difficult to compete with those who are skirting the law. Employee misclassification also generates substantial losses for state unemployment insurance and workers' compensation funds.

More information is available on the Department of Labor's misclassification website at (adapted from press release)

The DOL has greatly improved their enforcement and there is no reason why we should deny this reality. Take action! But before you do, please call this office (whether you're a contractor, a business manager, agent or organizer) to plot a strategy when you hear of prevailing wage cheating of any kind. As the old public service message about vigilance would say, "Take a bite out of crime."