Texas Law Aims to Deter Worker Misclassification in Construction Industry

Texas lawmakers are attempting to get tough on construction companies that commit payroll fraud by misclassifying construction workers, passing a new law recently signed by Gov. Rick Perry. As I have previously written, employees in the construction industry are often misclassified as “self-employed” or “independent contractors” by their employers, as employers try to avoid payroll taxes and overtime pay.

Two out of every five construction workers in Texas are wrongly classified as self-employed, according to “Build a Better Texas,” a 2012 study by researchers at the Workers Defense Project and faculty at the University of Texas at Austin.

That helps lead to tens of millions of dollars in lost tax revenues and overburdened safety-net hospital emergency rooms full of workers that lack worker’s compensation insurance, among other economic ills, the study showed. In 2012, Texas lost a minimum $54.5 million in unemployment insurance tax, in addition to hundreds of millions more in federal income tax, because of payroll fraud, the study showed.

Employee misclassification also causes misclassified construction workers to lose thousands of dollars in overtime pay, as the Fair Labor Standards Act requires non-exempt employees one and a half times their regular rate of pay for every hour worked above forty in any given week. Chances are high that a company that is misclassifying its employees to avoid paying payroll taxes or worker’s compensation is also shorting its construction workers on overtime pay.  For more information on the overtime pay issues construction workers face, click here. Construction workers that have not been paid overtime are entitled under the FLSA to up to three years of unpaid overtime, as well as liquidated damages in an equal amount of the back pay, and attorney’s fees.

House Bill 2015 is expected to lead to a $200 penalty on construction companies for each worker found to be misclassified. The Texas Workforce Commission is now reviewing its employer tax-auditing procedures to determine implementation of the law, TWC spokeswoman Lisa Givens said Thursday. The law takes effect Jan. 1.

While some have criticized the law as lacking teeth, claiming that the $200 penalty will not deter this sort of fraudulent behavior by rogue construction companies, the prospect of being sued for unpaid overtime owed to the misclassified construction workers could also be enough to convince these companies that misclassification is not worth the risk.

About the Author: Josh Borsellino represents workers that are owed unpaid overtime. If you have worked in the construction industry within the past three years without being paid overtime and have been classified as “self-employed” or an “independent contractor,” you may be owed thousands of dollars in unpaid overtime. If you have questions about overtime pay, please call Josh at 817.908.9861 or complete this online form for a free consultation.

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