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In NC, little movement toward reform

Posted Thursday, Sep. 04, 2014  comments  Print Reprints

The series


A huge tax drain


Under government’s nose


Workers feel pinch


Companies that cheat


Getting it right

Progress report

A task force convened in 2012 after The N&O series “The Ghost Workers” made several recommendations to crack down on rogue employment practices. Here are some of the recommendations and progress reports:

•  Provide educational materials to employers about proper classification of workers; target new employers when they file forms to start their business.

Some information is being provided to employers registering as a new business.

•  Enable the public to report companies that are cheating.

The Industrial Commission has collected tips about companies that cheat on workers’ compensation insurance; Division of Employment Security also takes tips.

•  Provide more funding and resources to licensing boards to go after scofflaws.

No change in resources.

•  Hire more fraud investigators at the North Carolina Industrial Commission to go after companies not purchasing workers’ compensation insurance.

Investigative unit has tripled in size to 15 employees; significant efforts to target companies believed to be avoiding insurance obligations. Leads coming from data sharing with Division of Employment Security.

•  Clearly define employee misclassification in the statutes, making it a fraud subject to criminal prosecution.

No movement.

•  Prohibit state and local governments from awarding contracts to businesses that misclassify workers or using subcontractors that do.

No movement.

•  Create a fund to pay claims for workers injured while working for a company without workers’ compensation insurance.

No movement.

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In some business-friendly states, construction firms are working with labor advocates to weed out misclassification.

But in North Carolina, few inside the industry are even talking, let alone acting. Those who are get frustrated by how difficult it is to get anyone to pay attention.

Alitha Palich, a Wake Forest public relations specialist, worked for a group of contractors in 2012, helping them explain to regulators how their businesses struggled to compete against cheating companies. Again and again, legislators canceled appointments, and many regulators didn’t seem to grasp the significance of the issue.

“They didn’t understand the pervasiveness and didn’t understand the gravity for North Carolina businesses,” Palich said. “There was a whole lot of ‘This is someone else’s problem.’ 

Palich said some of the businesses she helped have shut down or shifted their business model to avoid competing against scofflaws.

Mike Carpenter, executive vice president of the North Carolina Home Builders’ Association, knows his industry is rife with misclassification. When asked who was to blame, Carpenter didn’t name names. When pressed for a who, he hesitated.

“People are trying to survive economically,” he said. “People are going to look for shortcuts in any industry you talk about. There are people who are going to take advantage of a system.”

Allen Gray of the Carolinas Association of General Contractors helps contracting firms understand their staffing requirements. He was surprised and disappointed to hear of the extent of misclassification in federally funded projects reviewed by the newspapers.

“We are forever trying to bring people up to speed,” he said.

“If they aren’t doing what they agreed to do in the contracts, it’s untenable,” Gray said. “If we need to do more for members to be in compliance, we’ll do it.”

‘Make an example’

The general contracting firms that managed the 64 projects reviewed by The News & Observer signed a contract promising to follow all laws and ensure the subcontractors they hired did, too. But week after week, subcontractors they engaged to help construct low-income housing developments filed forms listing hourly workers as independent contractors. They gathered the forms to satisfy the federal requirements of the Davis-Bacon and Related Acts that the companies pay wages deemed fair by federal labor officials.

“Davis-Bacon was never intended to be a tax thing,” said Kathy Stilwell, executive director of The Affordable Housing Group, a developer in Charlotte that completed a senior housing apartment project called Cherry Gardens. “It’s always been a wage thing to make sure that employees that are working on federally funded projects are paid a fair and equitable wage.”

The North Carolina Housing Finance Agency, however, says it will take action.

The agency, which oversaw about a dozen projects during the recession that required the collection of certified payroll records, is now determined to make sure that the developers and contractors working on its projects know the hazards of misclassification. Agency leaders have been assembling information and a set of expectations to provide to developers after The N&O found that half of the workers on the projects were treated as independent contractors.

“We think everybody’s got responsibility,” said Bob Kucab, the agency’s executive director. “Everybody’s got a stake in the outcome. Once we figure out what and how to communicate, we will.”

Still, some believe change will only occur when regulators exert their authority.

“Make an example of them,” said Katie Tyler, chief executive officer of Tyler 2 Construction, a general contracting firm in Charlotte. “Punish them. Do it publicly. Say, ‘This is against the law. You’re going to be punished for it.’ 

Palich says regulators need to force general contractors’ hands.

“There’s no reason for them to self-regulate ...” Palich said. “It’s actually helping them financially.”

We want to know your thoughts and experiences with misclassification. Share your feedback directly with the reporters: mlocke@newsobserver.com or 919-829-8927; or on Twitter @mandylockenews.

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