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Bill Targets Companies That Misclassify Workers

A veteran lawmaker has filed legislation that would penalize businesses that misclassify workers as independent contractors. Leaders of construction firms have said their industry is rife with companies that purposely misclassify employees.

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Construction workers who intentionally misclassify their employees as independent contractors would be subject to hefty fines under proposed legislation authored by a veteran Democratic lawmaker.

House Bill 372, also known as the Workplace Fraud Prevention Act and filed by state Rep. Joe Deshotel, D-Beaumont, would levy fines of up to $5,000 on business owners for each employee not properly classified as such — a practice used often in the construction industry to avoid paying taxes, supplying fair wages or providing benefits to employees. Instead, employers may classify their workers as independent contractors to circumvent the necessary payroll requirements. The practice has been criticized by members of the industry.

Deshotel said his intent is to have businesses on an even playing field with respect to the bidding process for jobs, but supporters of the measure add that it could also crack down on the amount of employers who knowingly hire unauthorized workers. Under Deshotel’s bill, an “independent contractor” can only be classified as such if the person is registered with the Texas secretary of state and has a filing number, or possesses a valid tax identification number.

“Some people are interested in this because it’s socially wrong and it hurts people as individuals and their families and they don’t get paid right,” Deshotel said. “Other people are supportive because it gives unfair [advantages] to their business competitors” who can offer lower bids because they pay lower wages.

Though he said immigration enforcement was not his motivation for filing the bill, Deshotel said that aspect adds another layer to the proposal. Construction moguls across the state have been championing the issue in front of the Texas Workforce Commission for months. Stan Marek, the president and CEO of the Marek Family of Companies, an interior contracting company that has offices across the state, said in November that the illegal practice has led to a flourishing underground economy where workers are treated poorly and state coffers get short changed due to lack of proper tax payments.

Deshotel said he did not intend to file a mountain of legislation this session in part, to be able to keep better track of this proposal. He filed the same bill in 2011 and while it sailed through the House Committee on Business and Industry, it never made it to the House floor for a vote. The bill analysis on that proposal said that as many as 40 percent of construction workers were working “off the books … resulting in close to $9 million a year in lost revenue in a single area of the state as a result of unpaid state unemployment insurance taxes and federal taxes.” 

Marek could not be reached for comment on Deshotel’s proposed legislation, but he told The Texas Tribune in the fall that he expected some pushback from members of the residential construction industry, which would lead proponents of the measure to concentrate first on the commercial industry.

In addition to levying the fines — $500 for each employee for the guilty company’s first violation and $5,000 per employee for subsequent violations — HB 372 would establish a website and a telephone hotline to aid the public in reporting violations. It also requires that the workforce commission provide an annual report to the lawmakers containing figures on enforcement, including the number of complaints received and investigations conducted, and the amount of fines collected under the act. It also requires that employers post a notice in English and Spanish at work sites that indicates that every worker has the right to be properly classified as an "employee."

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