Worker misclassification in the construction business, done to avoid workers’ compensation and payroll taxes, is a growing problem nationwide, and Indiana is no exception, according to a local news report.
Legitimate commercial contractors told an Indiana TV station this week that fraudulent misclassification appears to be spreading in the industry. Some contractors can shave 30% off their bids by classifying their workers to be independent contractors, not employees.
That undercuts contractors who play by the rules, some said.
“Any easy 30% right off the top” said Mike Stavitzke, director of the Indiana/Kentucky/Ohio Regional Council of Carpenters. “It’s a race to the bottom. It sends the industry on a downward spiral.”
One contractor, Tim Larson, of Larson-Danielson Construction, estimated he would save about $164,000 a year in workers’ comp premiums if he misclassified his employees as independent contractors.
“That’s just our company and there’s hundreds of contractors in the state, so you know if everybody starts doing this it’s a huge problem,” said Larson, who called for better enforcement by state and local regulators.
A 2010 study done for the Indiana Building and Trades and Construction Council estimated the state could be losing up to $400 million annually in tax revenue due to misclassification.
Senate Bill 289, sponsored by Sen. David Niezgodski, D-South Bend, would require the Workers’ Compensation Board and other agencies to file a report each November for the next three years on the number of employers that have been found to have improperly classified workers. The bill passed the Senate last week and now goes to the House.
Bills to fund a fraud investigative unit failed to pass the legislature last year.
The news report also reminded contractors that the Internal Revenue Service provides a checklist to determine if a worker can be classed as an independent contractor.
This article was first published by Work Comp Central.