Underground economy target of task force
Photo/Rebecca Goldfine
Alan Shepherd, a Local 611 electrical workers' union leader, talks at a panel discussion in Portland last week
It might seem ordinary: A tradesman is hired for a few days, or months, to do a specialized job and is paid as an independent contractor. But the practice not only is often illegal and results in lost tax revenue, it can also muddy the definition of employee versus independent contractor and set the worker up for potential abuse and lost benefits.
Recently, several state officials traveled to Portland to hold their third public forum on the problem and elicit testimony and suggestions from local workers and employers. The officials are part of an 11-month-old task force created by Gov. John Baldacci to investigate the statewide dilemma of misclassified workers, a problem that's particularly rampant in the building trades.
In a down economy, employee misclassification becomes more noticeable as more so-called independent contractors lose their jobs and file for unemployment benefits. When their paperwork is processed in Augusta, it becomes apparent there's no documentation from their employer, and the state launches an investigation. In the past year, 3,000 suspicious unemployment claims have surfaced, and roughly 53% of those were from employee misclassification, according to the Maine Department of Labor.
Several members of the panel last Thursday evening sat in front of a crowd of 25 or so people at the Portland Career Center on Lancaster Street. Deputy Labor Commissioner Ned McCann, a panel member, said, "We're lucky to have people making noise about this," and mentioned that many are afraid of coming forth because of possible repercussions from their employers.
But two workers, Bruce Lord of Portland and his friend Ryan Jameson, were not afraid to speak up. They described how over a year ago they were hired for a week by a local contractor to do some drywall work in Pennsylvania for $22 an hour. Not only were they never paid, Lord says, but their boss was gutsy enough to ask the two men to sign a document saying they had received their pay, claiming that was the only way he could get them their money. They didn't sign it.
Lord says being cheated out of the $3,000 owed him created a personal financial crisis and he lost his housing.
Jameson then told the panel, "It's not just me and Bruce that this is happening to. This is hundreds and hundreds of people that this happening to every day. And people depend on this money. When somebody says, ‘I'm going pay you this money' and then they don't pay you, well, what are you supposed to do?'"
Alan Shepherd of Windham, a leader of Local 611, an electrical workers' union, beseeched the officials: "We need to close this underground economy that's so pervasive."
He reminded them that "unscrupulous employers" deprive misclassified workers of unemployment insurance, Social Security benefits and workers' compensation. Misclassified workers are also not eligible for family and medical leaves, minimum wage and overtime, discrimination protections or safety protections.
Wages paid under the table also deprive Maine of benefits. A 2005 study by Harvard University estimated that the state loses $6.5 million in workers' compensation premiums, $314,319 in unemployment taxes, and between $18 and $36 million annually in state income tax revenues.
And it's not just the construction industry that is riddled with undocumented workers; apparently it's a problem in many industries. Adam Fisher, a spokesman for the Maine Department of Labor, says in particular he's heard of similar reports from taxicab and truck drivers.
The problem also appears to be growing. The Maine DOL in 2004 conducted a survey of the construction industry and found then that 29% of employers misclassified their workers. This percentage jumped to 41% in 2007.
John Evans, a Local 7 union representative for iron workers, told the panel that the employers who do follow the rules are at a competitive disadvantage. "We're seeing contactors from out of state taking jobs for the people of Maine, which is fine if it's a level playing field," he says, adding, however, that it's often not.
Other speakers during the evening spoke about how construction companies that don't pay taxes on their workers can underbid competitors by a third.
John Leavitt, business manager for the New England Carpenters Union in Maine, says he hopes that penalties increase for employers caught misclassifying workers. "I recommend jail time," Leavitt said.
But the workers are not always blameless. Sometimes they prefer working under the table because they'll receive more cash up front. And other times those paying child support prefer to be paid without a paper trail so they can avoid reporting their income to the state, according to Fisher.
With the state saddled with steep revenue shortfalls, there's no plan at the moment to put more resources into stepped-up enforcement, such as hiring more investigators to visit job sites, Fisher says. Rather, the various departments involved in labor regulations, like the Department of Labor, Maine Revenue Services and Maine Workers' Compensation Board, will try to better coordinate their efforts to crack down on the practice, he explains. Fisher says the state will also seek to better educate employers about Maine's employee classification law so they can avoid running into trouble.
Most Recent
Most Recent
Comments