Some construction workers know what its like to go for weeks without pay, to be paid less than promised, and to not receive overtime pay when they work it. They are hired strategically as independent contractors by bad actors looking to save on job costs. This wage theft has become an epidemic across the residential construction industry in Massachusetts. Hiring workers under the classification of an independent contractor allows their employer to offer no promise of job security and the workers do not receive the tax deductions of a regular employee. By classifying workers as independent contractors employers avoid overtime and health insurance rules, payroll and insurance taxes and benefit from other forms of wage theft. By reducing costs through wage theft and other unscrupulous acts, some employers gain a competitive advantage over law abiding companies who comply with tax and business laws. This results in competition that is not fair due to the extra costs that law abiding companies pay. The underground economy in Massachusetts includes activities such as tax evasion, payroll fraud, cash payments, and wage theft.There are now multiple layers of subcontractors outsourcing work causing a challenge to determine who a person works for. These multiple layers can make it difficult to spot and punish crooked employers in the industry but that is all changing thanks to new legislation regarding wage theft and miss-classification.
A new bill was passed in the House and the Senate giving Massachusetts more power to weed out those that are stealing wages from their employees. Bill S.966 gives the state the power to issue stop-work orders on jobs where workers are being miss-classified or getting paid in cash. This is a huge step forward for companies that work hard to remain in compliance.
In Woburn, multiple construction companies have already felt the impact of the new bill. Ronald Mulcahey and Wing Environmental, Inc have been charged with paying their employees in cash in order to avoid paying them benefits or pay employment taxes. Mulcahey could be serving up to three, 5-year sentences consecutively and paying $350,000 in fines. He was indicted for making false statements on documents and for wage theft from the benefits plan as stated in Title I of the Employee Retirement Income Security Act. By not contributing to worker’s compensation funds or paying taxes on their wages, employers reduce their wages by up to 30%, thus allowing them to win bids over the good actors as they report lower costs. However, studies have shown these companies tend to deliver poor quality homes to consumers.
Prevailing wage has proven to be a driving force in project success. After Kansas’ prevailing wage law was repealed, wages fell 11%, training programs declined 38%, job site injuries rose 21% and employer contributions to pensions fell 17%. The perceived benefit of repealing the prevailing wage law was a 6% to 17% savings on state construction costs which never materialized. This is all according to a study by a professor of economics at the University of Utah given to the Kansas state Senate. By enforcing laws such as the one recently passed in Massachusetts, the industry can avoid situations such as those in Kansas when prevailing wage was seen as ineffective and repealed. By compensating workers fairly, everyone benefits; workers are more productive, job sites are safer, and workers are more competent due to better training.
Technology can also play an integral part in helping contractors remain in compliance with these laws. A solution for contractors to remain in compliance is to build certified reporting and monitoring systems into their payroll. Cloud-based solutions such as LCPtracker allows for the tracking, monitoring and reporting of workers’ wage, fringe, and demographic information. This helps to ensure contractors are in compliance and aids in leveling the playing field for all companies. reporting practices.