Correction to This Article
ยท A Feb. 9 Metro article on a labor law proposal in Maryland contained an incomplete description of the Internal Revenue Service's scrutiny of FedEx Ground. The company states in its latest quarterly report to the Securities and Exchange Commission that the IRS withdrew a $319 million fine for misclassifying its workers as independent contractors. The article also incorrectly said that an estimated annual loss to Maryland of $22 million in unemployment insurance premiums was the result of companies hiring illegal workers. The lost premiums are the result of missclassification of workers in general, state officials say.

Labor Proposal Targets Builders

By Lisa Rein
Washington Post Staff Writer
Monday, February 9, 2009

The workers building the office towers and homes around Washington are at the heart of a furious battle between Maryland's labor unions and contractors as the economy tightens the vise on the competitive construction industry.

Thousands of drywallers, painters, carpenters and other workers -- the backbone of the region's building industry -- are employed as "independent contractors." That means the boss is exempt from paying Social Security and Medicare taxes, unemployment insurance and workers' compensation premiums. Maryland Gov. Martin O'Malley (D) called the practice "shameful" this month and says the workers are employees who are deliberately misclassified, leaving them exploited and depriving the state treasury of tens of millions of dollars in unpaid payroll taxes.

The governor is calling on the General Assembly to make misclassifying illegal. But the construction industry says it is being unfairly targeted with regulations that threaten its already slim profits.

In the middle are low-wage workers, often caught between multiple layers of subcontractors and labor brokers that create confusion over who is responsible for their livelihood.

Under the state's definition, independent contractors are in business for themselves. They cannot unionize and are exempt from overtime and minimum-wage protections. If they are injured on the job, they pay their own bills if they have not paid their own workers' compensation premiums. They are hired to carry out specific tasks. Their work is closely supervised, they cannot take other jobs and the boss decides where, when and for long they work.

The men building Metropolitan Baptist Church's new sanctuary in Largo signed a time sheet every morning at 6:30 and worked six-day weeks for eight months. But when Miguel Ponce, 23, his brother Cristino, 21, and 31 other workers on their crew got their paychecks, no pay stub showed taxes had been withheld. And when the job ended last August, the young brothers from Mexico contend they were stiffed for 346 hours of pay, much of it overtime. They have filed a complaint with the federal Department of Labor.

The Ponces, who share a room in the basement of a house in Berwyn Heights, say the conditions of the job made them employees. But the Manassas broker who hired them said he considers them "pieceworkers," paid by the sheet of drywall they hung. "They're kind of independent," Ramon Alvarez said. Alvarez and an employee of C.R. Calderon Construction, the College Park subcontractor that hired him, said they are in litigation over the wages.

State officials say random state audits show that as many as 20 percent of Maryland's blue-collar workers are wrongly classified.

"This bill is about employers who cheat and cracking down on them," said Thomas E. Perez, the secretary of labor, licensing and regulation. He said the problem is undermining a century of basic labor protections.

Nine states have passed laws or regulations to crack down on the classification practice, which is also under scrutiny by the Internal Revenue Service. Among the targets of lawsuits and federal action is FedEx Ground, which was fined hundreds of millions of dollars in unpaid employment taxes after the IRS determined the company wrongly classified its drivers as independent contractors.

In Virginia, Rick Eppard of the United Brotherhood of Carpenters says the union is "educating" lawmakers about the practice and hoping the legislature will form a commission to study it. But lawmakers in the right-to-work state have not been enthusiastic about many labor priorities.

Unions in the District, Maryland and Virginia have a direct stake in the Maryland bill, not just because workers are vulnerable. Employers who pay workers as independent contractors can save 30 percent in payroll costs, experts say, undercutting unions that pay taxes and premiums in bidding competitions for construction jobs.

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