A growing number of companies across the country are purposely misclassifying workers as self-employed 'owners' for the sake of saving on labor costs. Doing so allows the companies to avoid paying health care, to ignore worker regulations, shift the burden of payroll taxation to the workers and obtain an uncompetitive advantage over businesses who do the right thing. A recent investigative report by Utah's KSL 5 News took a closer look at how the process works:
Thousands of Utah construction workers are employed in dozens of large projects not as traditional laborers, but as “owners” under a workforce re-classification process that critics say could allow employers to avoid paying benefits, payroll taxes and workers compensation insurance, according to an investigation by KSL Television.
The Utah Attorney General’s Office and the Utah Labor Commission told KSL they are each looking into the practice, which contractors say has allowed such companies to under-bid competitors on construction projects by as much as 50 percent. The companies who pursue the practice say it is legal under Utah’s limited liability laws, and isn’t designed to shirk any tax or payroll obligations.
In particular KSL 5 looked at a company called U&I, LLC:
On its website, it says if a business signs up for its services, that business’s “employees” now become “owners” in the U&I LLC. But these owners “still work on the jobs that you assign and take instruction and direction from you.” The only difference is, businesses no longer have to cover payroll taxes, workers’ compensation or unemployment. The website also says businesses that sign up will save a business “18 to 26 percent” off its labor costs.
An officer of U&I LLC told KSL that laborers are simply classified as “self-employed” and are given instructions and proper forms to ensure they pay taxes. Dean Kesler, a spokesman of U & I, said the business plan was reviewed by lawyers and accountants and the company is confident they are operating within legal boundaries.
The companies that specialize in such reclassification services are typically compensated by contractors who they sign up for their services, which generally consist of advice and help facilitating the change in employment classifications for the respective workforces.
For new “owners” like Jesus Delgado, such reclassification may be legal, but it is expensive. He now is responsible for covering costs traditionally borne by employers, but his wages have not increased. He is one of an estimated 3,000 employees-turned-owners who have agreed to the reclassification, in many cases to avoid unemployment.
Mr. Delgado says he signed up with another company offering similar services: CSG Workforce Partners.
Even though one would expect an “owner” to have influence over their workday, Delgado says he still took orders from the same contractors. He was occasionally ordered to work six days a week, which job site to report to and what exactly to do. Then, a few months into his construction job, he says he was fired.
KSL reviewed three months of Delgado’s pay stubs. Nowhere does it show how many hours he worked or the rate he was paid. There was also $400, or 12 percent, taken out of those checks, but no indication of where the money went and to whom.
“I didn’t see this as being fair,” says Delgado in Spanish. “Too much work and too little money, but we had to put up with it.”
Regardless of whether this particular practice is legal, it's dishonest. And it should, of course, be made illegal because its only purposes are to allow for the exploitation of workers and the punishment of businesses who conduct their work more honorably.