Worker Misclassification in Texas

by Terry Bryant

A study released in March 2018 reveals that immigrants are twice as likely as native-born workers to be employed in industries where violations of core labor standards are pervasive – as much as 17% of the United States labor force.  According to the study, this is especially pronounced in Texas and has a negative impact on the state’s labor force.

A study by The Migration Policy Institute (MPI) – Strategic Leverage: Use of State and Local Laws to Enforce Labor Standards in Immigrant-Dense Occupations – analyzes systemic wage underpayment and misclassification of workers in industries that employ a large number of immigrants.  Hotspots where an overly large number of violations occur are found in construction, service businesses (which include cleaning and food service), and transportation. Misclassifying employees as independent contractors allows employers to avoid paying payroll taxes, overtime, and workers’ compensation. It also enables employers to evade federal law that requires new hires to document that they can legally work in the U.S.

The MPI study, which also includes research into payroll fraud associated with employment violations, pays homage to a previous investigation by McClatchy Newspapers in 2014.  That investigation revealed that misclassification of construction workers in Texas resulted in a $1.2 billion loss in state tax revenue.

As a result, the Texas Workforce Commission (TWC), along with workers’ rights groups in Texas, is revamping efforts to increase protections for low-income laborers and pushing the Legislature to crack down on employers which uniformly and intentionally misclassify their employees.

According to the TWC, the number of misclassified Texas workers between 2010 and 2012 was around 35,000. During those two years, 4,300 construction employees and 4,100 in the health care and social assistance fields were incorrectly reported as independent contractors. Those 8,400 workers alone account for lost revenue of about $2.4 million to the state’s unemployment insurance fund, according to a report by the Texas Legislative Budget Board.

“Worker misclassification prevents employees that would otherwise qualify for workers’ compensation or other benefits from receiving those benefits,” according to Maxie Gallardo, a policy analyst with the Workers Defense Project, an Austin-based advocacy group. “It strips them of their rights as employees.”

Since 2008, 27 states and the District of Columbia have passed bills addressing worker misclassification, forcing employers to pay accurate payroll taxes and legitimately deduct them from employee paychecks.  Misclassified employees (and independent contractors) are considered self-employed and ostensibly pay their own taxes. So misclassification has historically been a way for employers to not only evade employee tax obligations, but in some cases, commit other employer-related frauds. In 2013 the Texas Legislature began its crackdown by passing a bill allowing the TWC to fine a business $200 for each employee it deems misclassified.

That measure, however, falls short – as it only applies to businesses with government contracts. An additional measure – House Bill 434 – looks to crack down on employers who misclassify. Filed during the last legislative session and now sitting in committee, awaiting the next legislative session, HB 434 would fine a construction employer $100 for each worker who is initially misclassified and $1,000 for each subsequent offense.

As you can guess, it is staunchly opposed by real estate developers, home builders, and general contractors.

If you have been injured on the job and you believe misrepresentation of your employee status may explain why you’re having difficulty with workers’ comp, the lawyers of Terry Bryant Accident & Injury Law want to hear from you and might be able to help.