A couple of months ago I saw two separate articles talking about how the federal government is hiring additional employees to investigate/fine companies that are incorrectly paying their labor force as contract workers instead of full-time employees which is a problem in the construction industry.
Paying an employee as contracted help saves the employer big bucks. The company gains several advantages by paying the workers in this fashion. The most obvious savings is not paying Social Security, Medicare, federal/state unemployment taxes. FICA (Social Security & Medicare) alone saves the company roughly 7.65% of the employee’s gross pay. Another savings that you can’t put a dollar amount on but can be huge is shifting labor risk to the employee. When the “contract employee” is paid by units installed, the company no longer has to worry about running into issues that lowers the productivity rate. The risk is the worker trying to put food on the table that has to either work faster, longer or take shortcuts to still take home the same dollar amount regardless of how long it took to complete the task.
Just recently, I read an article talking about how the Labor Department is starting a new campaign called “We Can Help” to catch employers that do not follow wage and hour laws. There will be advertisements asking workers to “turn in” the employers and additional government employees to research the complaints. Just like the contract employee, the construction company can save big bucks on the labor costs on projects. This creates an unfair market when Company A is trying to pay their employees and honest wage and Company B is paying only a fraction of what the labor cost should be.
Owners may not realize it, but they want the same. Yes, most owners are looking at the bottom line and want the cheapest contractor possible. But how many halfway intelligent owners would say they want to use a contractor that steals from their own employees? I think most would realize that if the contractor is willing to engage in this behavior, then what is stopping the contractor from doing the same to the customer? In the long run these guys are not cheaper but just good at shifting the costs onto others!
I hope the government is successful and puts these contractors out of business. These practices steal money owed to the employee. Also, it is stealing from us, the taxpayers! Not paying unemployment taxes or any other tax is no different than not paying income taxes and it affects all of us.
