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Unreported, Misclassified Workers Form Up to 22% of Construction Workforce

Press release from Dept. of Labor and Workforce Development; Feb. 13, 2012:

INITIAL REPORT ADDRESSES TAX AND INSURANCE FRAUD

NASHVILLE – Tennessee Department of Labor and Workforce Development Commissioner Karla Davis today announced the completion of a task force report addressing insurance and tax fraud in the construction industry.

The Employee Misclassification Advisory Task Force was assembled in July 2011 to study and make recommendations to the Tennessee legislature on employee misclassification in the construction industry. Employee misclassification occurs when an employer classifies employees as independent contractors or pays the employees “off the books” or in cash. This practice is prevalent in the construction industry.

Based on estimates using 2006 data there were between 21,990 and 36,680 misclassified and unreported construction industry workers. In Tennessee, misclassified and unreported workers are estimated to range from 11-22% of all workers in the construction industry.

“This type of practice is unfair to those companies who are playing by the rules and lose competitive bids, and it creates a burden on employees who are not covered by workers’ compensation coverage should they get injured on the job,” said Commissioner Karla Davis.

The estimated losses in revenue collection of the state and private insurance carriers were calculated using 2006 data prepared by Dr. William Canak and Dr. Randall Adams.

ESTIMATED LOSSES

Unpaid Unemployment Insurance Premiums:     $8.4 million – $14.9 million

Unpaid Workers’ Comp Premiums:                        $52.1 million – $91.6 million

Uncollected Workers’ Comp Premium Tax:           $2.1 million – $3.7 million

Uncollected Federal Income Tax:                           $15.2 million – $73.4 million

Uncollected Social Security/Medicaid:                   $7.5 million – $42.1 million

In its recommendations to Tennessee legislators, the task force report suggested measures to ensure stronger compliance with Tennessee’s employment, tax, licensing, and insurance laws through authorization of administrative penalties, and expanding the authority of the Commissioner of Labor and Workforce Development to issue stop work orders directed at noncompliant employers. Additionally, it recommended four additional investigators to work each section of the state.

Employers are encouraged to read the full report at the task force’s Internet site at http://www.tn.gov/labor-wfd/EMEEF/ or participate in the task force’s public meetings which are posted at http://www.tn.gov/labor-wfd/public_notices/public_notices.htm Those wishing to report suspected misclassification in the construction industry may contact the Fraud Tip Line at 1.888.243.7283.

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