TN Dept. of Labor Says Too Many Construction Workers are Paid Under the Table

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.