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New DOL Rules Take Aim at Worker Misclassification

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Misclassification can be devastating for workers and costs taxpayers billions. It’s not a problem in the unionized construction sector.

By Mark Colangelo

For decades, a shadow workforce has toiled in New York City, denied the benefits and protections of full-time employment. This is the reality of worker misclassification, where employers categorize workers as independent contractors to avoid taxes and labor regulations. The Department of Labor's (DOL) recent revision to the Fair Labor Standards Act (FLSA) takes aim at this practice, which is especially pervasive in the non-union construction industry.

A true independent contractor runs their own business, setting their own hours, using their own equipment, and offering services to multiple clients. But workers misclassified by non-union contractors lack this autonomy. They work set schedules under the employer's direction, use company-provided equipment, and serve a single client— the very contractor that denies them employee status. It’s estimated that 20% of New York’s non-union construction workers are misclassified.

Cost Savings For Contractors, Devastating Blow For Workers

The motivation for misclassification is clear: to cut costs. By dodging payroll taxes, unemployment insurance, and minimum wage requirements, non-union employers artificially lower their labor costs. They use this practice— along with wage theft and other unscrupulous tactics— to unfairly underbid union contractors on projects.

But this deceitful practice comes at a steep price for workers. Denied essential benefits like health insurance, paid leave, and overtime pay, misclassified workers face financial insecurity and vulnerability. Without employee health insurance, a simple illness can spiral into insurmountable debt. And an injury on the job site leaves employees without a paycheck and no ability to work.

The Ripple Effect: Taxpayers on the Hook

The consequences of worker misclassification extend far beyond the individual worker. When non-union contractors shirk their tax obligations, the burden falls on taxpayers. The government loses out on vital revenue for social programs and infrastructure, and the rest of us have to pick up the tab. Compounding the problem, misclassified workers are often forced to rely on public assistance programs, straining social safety nets. This practice costs taxpayers billions. It’s just one more reason New York can’t afford non-union.

The aim of the new rules are to make it much more difficult for non-union contractors to label full-time employees as independent contractors.

The DOL Steps In

Effective March 11, the DOL now applies a “totality-of-the-circumstances” framework to determine workers’ independent contractor status. The new rules prioritize factors like the employer's control over the work performed, the level of skill required, and the integration of the worker into the company's operation. The aim is to make it much more difficult for non-union contractors to label full-time employees as independent contractors. Acting Secretary of Labor Julie Su has said the rule will protect workers unfairly denied the benefits of full-time employment, many of whom work side-by-side with properly classified employees.

Leveling The Playing Field For Unions

The DOL's revised FLSA regulations are a step towards fair treatment for misclassified workers on New York City's non-union job sites. While legal battles over the rule are already brewing, it will empower workers to challenge their employee status and demand proper compensation. If the changes to the FLSA prove effective, it could help level the playing field for union contractors, who properly classify all of their workers. Without the ability to artificially lower bids by effectively shifting labor costs onto taxpayers, non-union contractors would be forced to compete on skill and efficiency. As Union Built Matters has previously reported, skill and efficiency are areas where union contractors are proven to have the edge.

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Mark Colangelo is a writer and blogger.

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