Houston Chronicle article points out the problems with misclassification
In a January 19th Houston Chronicle article entitled, "Working: A plea for fair play", L.M. Sixel discusses how due to the economy, many construction companies are resorting to misclassifying their workers as 1099 or independent contractors instead of employees in order to get out of paying payroll taxes and benefits.
Marek Brothers Systems, a Houston-based commercial interior construction firm, rightfully classifies its 2,000 workers as employees, which means "Marek pays the employer's half of Social Security taxes, pays unemployment insurance taxes, and provides employees a 401(k) plan and subsidized health insurance."
Division president of Marek Brothers Systems and ConstructionCitizen.com blogger Mike Holland explains that there are two sets of rules for labor on construction jobs. One for companies that consider and pay their workers like employees and one for companies who use labor brokers and independent contractors for their work.
"I'm playing by one set of rules, and they're playing by a different set," Holland said. What's more, he said, the misclassification reduces the state's unemployment fund at a time Texas can least afford it.
The Workers Defense Project, an Austin-based advocacy group for low-income workers, estimates that Texas loses at least $35 million in unemployment taxes each year as a result of improper classification of workers, according to policy analyst Emily Timm.
But Holland and other employers are facing an uphill struggle in pushing Texas to crack down on tax scofflaws.
Jim Kollaer, former CEO of the Greater Houston Partnership and now a consultant on real estate and also a blogger on ConstructionCitizen.com supports stronger penalties against worker misclassification.
It contributes to the problems of wage theft - including failure to pay overtime and other abuses - that make construction less attractive as a career path, said Kollaer, who writes a blog on workforce development issues in the building industry.
More than half of the states impose civil penalties for misclassification, Kollaer said, and some even have criminal penalties for wage theft.
"They're putting in an enormous amount of teeth to enforce them," he said. For now, Texas isn't.