Building Advantage

Wisconsin task force aims to protect workers against payroll fraud

Union construction groups support the task force’s measures to stop worker misclassification.

Jessica Levy, for Building Advantage
Misclassifying employees as independent contractors can erode those workers’ legal protections.

As 2020 comes to a close, the Wisconsin Task Force on Payroll Fraud and Worker Misclassification issued a report detailing several recommendations on how to combat problematic employment concerns in the coming years.

The report follows up on an initiative that the state began in 2009. It notes both areas of progress and areas for improvement, along with information on why it matters. Many people in the construction trades follow the task force’s progress closely, since the industry has been plagued by issues with worker misclassification in the past.

What is worker misclassification?

Worker misclassification in Wisconsin happens when a company incorrectly designates someone as an independent contractor instead of an employee. Doing so is against the law. It means that companies evade the responsibility of paying for various expenses: the employer portion of payroll taxes, unemployment insurance, health insurance, workers’ compensation insurance and more.

Misclassifying employees as independent contractors also erodes those workers’ legal protections. As an independent contractor, workers aren’t covered by typical protections like minimum wage laws, overtime rules, family and medical leave laws and more. Even federal anti-discrimination laws don’t apply to independent contractors in the same way that they apply to employees, placing them at risk of being mistreated with no pathway to pursue a legal case against their employer.

How is it relevant to construction tradespeople?

In the task force’s report of the top 10 industries that received penalties for worker misclassification, the construction industry ranked fourth. That high ranking confirms anecdotal evidence that construction workers may currently feel pressured to take on independent contractor roles instead of formal employee positions that come with the associated benefits and protections of a formal employee role. 

Construction tradespeople, therefore, could have much to gain from more vigorous enforcement of current labor laws in addition to new measures to prevent payroll fraud.

With a lot at stake for skilled workers in the construction trades, the industry’s unions are well represented on the task force. The roster of members includes people associated with trade groups such as Painters Local 7, Construction Business Group (CBG) and Iron Workers Local 383.

Their participation in developing the task force’s recommendations on how to move forward is a signal of just how important the outcome will be to the large number of workers in Wisconsin’s construction trades, numbering well over 100,000 people. Union construction groups such as the North Central States Regional Council of Carpenters have already come out in support of the recommendations.

What does the Wisconsin Task Force recommend to stop worker misclassification and payroll fraud? 

After researching best practices and considering how different approaches apply to Wisconsin in particular, the task force issued five recommendations to help solve the state’s most salient problems:

●      Create an enhanced contractor registration program

●      Create an interagency coordinated enforcement team

●      Increase the capacity of the Department of Workforce Development

●      Develop a penalty structure for violations that deters repeat violations

●      Educate workers and employees on rules, requirements and penalties

Many more details about each of the recommendations can be found in the task force report.

Who will benefit from cracking down on worker misclassification?

Construction workers aren’t the only employees that are victims of misclassification. People in other industries like restaurants, childcare and more are often placed in similar positions where their independent contractor status can deprive them of certain protections.

In addition to benefitting construction workers and these other independent contractors, ensuring that workers are correctly classified can also benefit the state’s coffers. According to the task force report, Wisconsin’s Department of Revenue estimates that worker misclassification costs the government $50.7 million in tax revenue annually due to lost business taxes from the construction industry alone.

Businesses that already follow the law may also stand to benefit, since they will no longer have to compete for business with companies that are illegally keeping their costs down.

In 2021, with these benefits in mind, the state will continue its efforts to bring current practices in line with existing laws.

For more information on how enforcing laws to prevent worker misclassification could benefit construction workers, visit buildingadvantage.org/about/who-we-are.