Spotlight sponsored by Adams & Reese LLP
The Impact of Worker Misclassification in the Construction Industry
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One of the most concerning, wide-ranging consequences of worker misclassification is the loss of tax revenue. Employers who categorize their workers as independent contractors are not required to deduct taxes and Social Security contributions from their paychecks. Therefore, misclassification leads to income underreporting on tax filings, resulting in significant losses in tax revenue at both state and federal levels.
When workers are misclassified, they may not receive the benefits they are entitled to in the event of job loss or workplace injury. This practice places additional strain on public assistance programs, as misclassified workers may turn to them for medical costs and financial support.
Worker misclassification is dangerous for workers, but it also places law-abiding contractors at a competitive disadvantage. Contractors who engage in misclassification can submit lower bids on construction projects, which undercuts fair-minded contractors. This situation creates a dilemma for honest employers.
Regulating worker classification has been challenging over the years, as the requirements tend to vary based on which political party is in control. Enforcement of worker classification rules is also challenging. Generally, the DOL and the Internal Revenue Service lack the funding to investigate misclassification practices and enforce the regulations.
Sub labor dominates the roofing industry and is here to stay for the foreseeable future. Determining how to classify your workers can seem like a daunting task. Some of the guidelines fall into a gray area that can be hard to navigate. In addition, as we all know, classifying workers as employees can be beneficial for them but can be a substantial financial commitment for you.