“Independent contractor” abuses among immigrant construction workers in Boston

The Boston Globe has run an article titled “An underground economy of improperly classified workers cheats laborers and taxpayers alike.” The Senate’s guest worker legislative language prohibiting independent contractor status is designed to prevent these abuses.
The article summarizes the problem:
The undocumented workers are part of an underground economy fueled by fast-paced growth in the region. But this underground economy poses particular problems for both the workers and the Commonwealth’s taxpayers.
Because the laborers’ unidentified employer is classifying them — in violation of state labor law, union officials say — as independent contractors, they are not eligible for the benefits and safeguards available to regular employees. They are paid no overtime and are not eligible for health insurance or worker’s compensation.
A 2004 study by researchers at the University of Massachusetts and Harvard University concluded that one in every seven construction workers was misclassified as an independent contractor and estimated that the illegal practice cost the state $7 million a year in worker compensation premiums, $4 million a year in payroll taxes, and $4 million a year in unemployment insurance payments.
More from the article, by Robert Knox 11/16/06:


On a commercial construction project in Hanover, a worker from Ecuador reached down from a ladder to shake the hand of a union organizer and discuss his presence on a job site a continent away from home. The Ecuadoran — a recent hire at the Village Square strip mall work site — said he crossed the border this year to look for work in the United States. Guided by friends, he found it in the construction boom south of Boston, working for $11 an hour for 10 hours a day. He is paid in cash and considered an independent contractor.
Other carpenters working with him from countries such as Brazil and Mexico have similar arrangements, and travel daily to Hanover from living quarters in Fall River, according to Mario Majia , a representative of the New England Regional Council of Carpenters .
The undocumented workers are part of an underground economy fueled by fast-paced growth in the region. But this underground economy poses particular problems for both the workers and the Commonwealth’s taxpayers.
Because the laborers’ unidentified employer is classifying them — in violation of state labor law, union officials say — as independent contractors, they are not eligible for the benefits and safeguards available to regular employees. They are paid no overtime and are not eligible for health insurance or worker’s compensation.
At the same time, the state and its taxpayers lose the withholding taxes that the employer would otherwise pay, as well as the employer’s contribution to the unemployment insurance and worker’s compensation funds. Lost, too, is any contribution to Social Security. Neither the Ecuadoran nor anyone else involved on the project could identify the subcontractor that hired them, and neither the project’s developer nor its builder returned phone calls.
Attorney General Tom Reilly , in a written explanation two years ago of the state law governing employee classification, said employers who classify construction workers as independent contractors “unfairly reduce employees’ state and federal tax withholding and related obligations.” They deprive workers of benefits and disadvantage companies that comply with the law, Reilly said.
Undocumented workers are often afraid to complain. And many know nothing of the benefits they might otherwise enjoy.
At a construction site for luxury condominiums in Canton last month, two workers from Brazil said they were unfamiliar with the system of withholding taxes and government benefits common to American workers who receive W-2 forms from their employers. They, too, said they learned of the construction jobs from friends and get paid in cash as independent contractors. The men interviewed did not want to give their names for fear of being deported.
Contractors and developers typically favor subcontractors who keep costs down, and one way to do that is for the subcontractors to classify their workers as independent contractors.
Not all builders are guilty of violating the state’s employee classification law, their representatives point out. “If someone cheats,” said Greg Beeman, president of the Massachusetts Chapter of Associated Builders and Contractors , “it puts the legitimate companies who make up the vast majority of the industry at a great disadvantage.” The rules governing independent contractors are confusing, he said, adding to the problem.
Although many undocumented workers from Mexico, Central America, and South America have been drawn to the construction trades, the issue is not immigration, said Mark Erlich, executive secretary of the carpenters’ council. Unscrupulous employment practices have nothing to do with immigration, he said.
Exploitation of undocumented workers results in a spectrum of practices, he said, that includes paying cash which is not reported as income, paying workers no overtime, paying wage rates barely half industry standards, and violating child labor laws. “Our beef is with those kinds of practices,” Erlich said. Treating construction workers as independent contractors should be prosecuted as tax and insurance fraud, he said.

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