State Enumerates Losses from Misclassifying Construction Workers

The state of Tennessee finally has a dollar figure for workers comp and unemployment premiums going unpaid in the construction industry. Companies that play by the rules say they’re being put at a disadvantage by firms that misclassify employees.

Crunching numbers on the most recent data available showed between $52 and $92 million in workers comp and $8 million in unemployment went unpaid in Tennessee.

The figures are from 2006, compiled by MTSU professor William Canak. He compares the results to a leaky faucet that will do more than add a few bucks to a water bill.

“If you told me that the leak is going to undermine my foundation and my house may slide down the hill here where I live, I might pay much more attention to it.”

Canak is part of a state task force that has been looking for a way to stop the widespread practice in the construction industry. While misclassification puts law-abiding firms at a disadvantage, workers may also be unaware they’re neither eligible for workers comp nor unemployment.

States around the country are trying to stop the widespread practice of paying construction workers under the table or misclassifying them to avoid workers comp. Canak’s work finds Tennessee’s problem is on par with other states.

As many as 36,000 or 22 percent of all construction workers in the state were either misclassified as contractors or paid off the books.

Canak from MTSU compiled the report, which he says is the first of its kind in Tennessee.

“Now these obviously are estimates. It’s a pretty difficult topic to go out and study directly.”

Law abiding companies say rule-breakers also help drive up workers comp premiums for everyone else.

A state task force is recommending new administrative penalties and the ability to issue stop work orders for construction firms trying to avoid premiums.


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