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Worker misclassification: Unions, some contractors say it is a serious issue in Indiana has published a comprehensive story describing the construction industry and organized labor’s challenges with worker misclassification in Indiana.

The issue: Some contractors and subtrades are using independent contractors on their jobsites who should be in fact classified as employees, subject to the payroll taxes and benefits that employees receive.

“It’s a problem that’s been around for many decades,” writer Andrew Steele quotes Dewey Pearman, executive director of the Construction Advancement Foundation of Northwest Indiana, as saying. “But it’s becoming epidemic.”

There is a dispute about the seriousness of the misclassification issue.

The story cited a 2010 study commissioned by the Indiana Building & Construction Trades Council and the Indiana, Illinois, Iowa Foundation for Fair Contracting, which argued that a company’s use of misclassifed contract workers gives employers who use the practice a decided, but unfair, competitive advantage.

The report, by economists from the University of Missouri-Kansas City, estimated 72,299 employers, 8,052 of them in construction, had misclassified employees in 2008. It said 15.3 percent of employees were misclassified, totaling 377,742 workers, of whom 24,323 were in construction.

However, several state agencies “charged by the state’s Pension Management Oversight Commission with doing a study of their own in 2010 disputed the methodology and assumptions of the university study.”

They estimated 8 percent of workers, not 15.3 percent, are misclassified, and that the state loses $14 million to $20 million annually in tax revenue, “of which (the Department of Revenue) could be expected to recover a substantial portion.”

The report, by the state departments of Workforce Development, Labor and Revenue and the Workers’ Compensation Board, also questioned the impact on the workers’ compensation and unemployment insurance system.

Finally, the report’s writers argue that misclassification often is an innocent misunderstanding of the law. “Heavy-handed penalties will have little impact on these employers,” the report concluded.

Of course, Northwest Indiana is highly unionized compared to the rest of the state, and employers and unionized contractors would find misclassified workers to be a greater threat than to businesses and markets where non-union contractors dominate.

Nevertheless, “when a state legislative study committee investigated the issue last year, more than 40 contractors wrote letters contending that the misclassification problem has grown to the point that it threatens the viability of construction companies that abide by the rules.”

The companies included Northwest Indiana’s Berglund, Gough, Larson-Danielson, Precision, Prodigy, Solid Platforms, Specialty, Superior, and Pangere.

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