UMaine Bureau of Labor Education Paper Reveals High Cost of Misclassified Workers in Maine’s Construction Industry
Contact: Bill Murphy, 581-4124; George Manlove, 581-3756
ORONO – Problems resulting from construction employee misclassification as independent contractors are highlighted in a briefing paper released recently by the UMaine Bureau of Labor Education, titled “Stretching the Law, Stressing the State – Misclassified Workers in Maine’s Construction Industry.”
According to one of the studies cited in the paper, an estimated 11 percent of Maine’s construction workers are routinely misclassified as independent contractors — a practice that, while saving some employers money, is illegal and raises employee-related costs for other companies who obey the law and classify their employees properly. State employment law definitions of independent contractors are based on the degree of control an employer has over the individual when performing work for the employer.
The bureau recently compiled information from a 2005 Harvard University study of the Maine construction workforce, and state and federal labor departments, to produce a report assessing the impacts of improperly classifying workers as independent contractors. The briefing paper concludes that the problem is not only widespread, but is more prevalent that can be accurately documented because of the scope of the underground economy in construction.
For example, a number of employers and employees working “under the table” on a cash-only basis do no leave a paper trail. Thus, as the Harvard study observes, the full extent of the problem is difficult to document. Independent contractors technically are self-employed. They are responsible for paying their own health insurance, income and social security taxes, and taking care of all employment-record documentation.
Companies that classify workers incorrectly as independent contractors can lower their own expenses since they can avoid paying workers compensation insurance premiums, unemployment taxes and employee benefits. However, the practice deprives employees of protections normally afforded through unemployment and workers compensation coverage, as well as health insurance and other benefits usually provided to employees, according to William Murphy, director of the University of Maine Bureau of Labor Education.
Misclassification of employees also harms construction contractors who obey the law. In this industry, contractors rely on bids to win contracts. Employers who misclassify their employees can have much lower labor costs than contractors who obey the law, thereby enabling contractors who misclassify to gain an unfair economic advantage in the contract bidding process.
The Harvard study revealed that “during the years 1999 through 2002, at least one in seven, or 14 percent annually, of Maine construction employers are estimated to have miscalculated workers as independent contractors.” The study also found such employee misclassifications to be extensive, with “over 4 in 10 workers (45 percent) misclassified annually in construction employers found to be misclassifying” during this period. So, while the percentage of employers misclassifying (14 percent) is relatively low, this is offset by the extent of infractions (45 percent) by individual employers within this group who do misclassify.
The Harvard report research found that an average of 3,213 construction workers in Maine were misclassified as independent contractors in each year between 1999 and 2002. This misclassification produced the following losses during this four-year period: