Houston construction leader calls for changes to save the American middle class: Part 1
By Stan Marek
I love the construction industry and I speak from experience when telling you it has to be saved from itself. Since 1938, our family business has helped build the monuments of this city and this state. More importantly, our companies – like many others over the past 75 years – have helped tens of thousands of hard-working Americans enjoy an honorable blue collar, middle class standard of living. But, now our middle class is threatened like never before.
When I graduated from Texas A&M in 1969, after serving my active duty in the Marine Corps Reserves, I joined the local carpenters union as a drywall mechanic. Wages and benefits were very good and it was indeed a quality, middle class occupation. The non-union tradespeople enjoyed the same kind of lifestyle. We all received good hourly pay, overtime, worker’s compensation insurance protection and had employment taxes deducted and paid. There was a bond between company and worker. We worked hard to keep our jobs secure. If our company did well, we would be provided for. And, we were.
Fast forward to today and my, how things have changed.
Many construction companies now look for ways to avoid having employees altogether. They don’t want a bond between company and worker. The truth is they want as few strings as possible because having employees on the books means having to shell out for hourly pay, overtime, benefits, workers’ comp, payroll taxes, compliance with employment laws and the possibility of being audited by the federal government to verify the immigration status of workers.
So what do they do?
In our industry, as in others, many companies “misclassify” their employees, which means they pretend their workers are “independent subcontractors” when by law they meet the definition of an employee. This practice allows those companies to get a pass on all the obligations of an employer, most of which protect the worker. Without employees, there are no minimum wage and overtime laws to abide by. There are no benefits like medical insurance, vacation and paid holidays. There is no workers’ compensation insurance or OSHA jurisdiction to protect the worker. Taxes on labor are not withheld and sent to our federal government. The unemployment trust fund in Texas is dwindling as a direct result. And now that the Affordable Care Act is the law of the land, its employer mandates give companies even more incentive to unload their workers into the underground economy.
As taxpayers, we all suffer while the working man and woman takes the brunt of it.
A bipartisan Texas House Committee report recently said “A misclassifying employer compromises free markets through unfair competition and promulgates lawlessness." The panel noted that the Texas Workforce Commission found more than 60,000 workers had been misclassified in 2013, resulting in $8.6 million in unpaid taxes. I believe those numbers are just the tip of the iceberg. Keep in mind that the Workforce Commission can only identify a portion of what’s really happening because the agency has limited resources.
It is already illegal to misclassify employees, but companies do it anyway because government enforcement and self-policing by the industry are sorely missing.
The elephant in the room is that many of these same workers lack legal status. Most began working under a traditional employer-employee relationship. But as immigration enforcement actions, which came as raids under President Bush and now I-9 audits under President Obama, removed them from the rolls of legitimate employers, they migrated to the independent contractor model.
You may think that when immigration audits identify illegal workers they are then deported. That’s not true at all. The employer is simply required to terminate them. It seems they are rarely deported in those circumstances. So, many end up working for unscrupulous employers who call them independent contractors knowing the workers are unlikely to seek legal recourse.
Contractors who abide by the law cannot compete against those who use the independent contractor business model. Those who cheat on their taxes in this fashion can underbid ethical contractors by as much as about 35 percent. While the cheaters get the contracts, middle class jobs are falling by the wayside.
There is no doubt the federal government , including lawmakers from both parties, has failed us so far on immigration reform and other underlying issues facing our shrinking middle class. But there is time to turn the corner. Government action, however, is not sufficient. Tomorrow I will lay out not only what our elected leaders must do but I’ll also tell you about private sector solutions taking root right here in Houston.
Stan Marek is president and CEO of the Marek Family of Companies, a specialty subcontractor based in Houston.
Houston construction leader calls for changes to save the American middle class: Part 2
By Stan Marek
Saving the American middle class is a tall order but I believe firmly that it can be done. Yesterday, I explained how hundreds of thousands of undocumented workers in our city are simultaneously being exploited while propping up the so-called “Texas Miracle.” Jobs that could create a middle class way of life for many of our youth are instead held by someone being paid off the books and avoiding payroll taxes while those costs are shifted to all other taxpayers.
The undocumented should not be blamed. They came to the United States to fill jobs that would improve their lives and provide for their families. When our economy was booming, they provided the labor that was otherwise unavailable. But during the economic meltdown of 2008, their wages dropped as did the wages of legal workers who were competing for the same jobs. Now that the economy is improving, those wages are not rising. That’s because of the supply of labor coming into Texas from all over the United States. Many have fled states like Georgia, Mississippi, and Arizona where legislatures have passed harsh immigration crackdowns. Texas lawmakers have not made that mistake. So, immigrant workers don’t leave the US, they simply come to work in Texas.
I agree with the Chronicle’s Editorial Board when they said on January 23 that President Obama’s executive order is a great opportunity for workers in many industries, especially construction, to get out of the shadows, get right with the law, and become taxpaying members of society. Instead of being paid in cash or off payrolls with no social security taxes withheld, those who apply and meet strict requirements will be given an identity card and can start to pay their fair share into the system.
Will it work? The Chronicle got it right in saying this is a matter of trust. Will the government be able to follow through on the president’s promise of legal status and decreased deportations? It will be a tough sell because of the challenges in our courts and rhetoric from certain elected leaders engaged in the politics of fear.
Much of that is simply theater. Here in the real world, we can start taking steps to create good careers. The president’s actions are necessary but the private sector should act as well to address our workforce needs.
The biggest obstacle, perhaps, is an unwillingness of some employers to create hourly jobs that pay well and take into consideration the taxes that should be paid. It is difficult to reverse the trend when construction jobs are so often bid with cheap labor rates based on a workforce being paid off the books.
There is a solution taking hold in our city. A group of dedicated facility owners and construction companies have been quietly developing a program called the Construction Career Collaborative, or C3. It’s a program modeled after the Green Building movement, which as you may know is all about building sustainable structures for the future. C3, too, is all about building a sustainable labor force for our future.
A main component of C3 is an hourly wage rate with applicable taxes. Also safety training and workmen’s compensation insurance are required. C3 is a voluntary program that enlightened owners like Texas Children’s Hospital, MD Anderson, and the Archdiocese of Galveston–Houston have adopted. They require all workers on their jobs to be treated as employees, not independent subcontractors. As a next step, the City of Houston should demand that all projects involving any tax dollars should adhere to C3 standards as well. I would urge you to write to your city councilmember and the mayor and ask that they adopt the principles of the Construction Career Collaborative for projects throughout the city.
Our community must work together to attract young men and women back into the skilled trades. We have neglected one of our largest assets because of the availability of cheap immigrant labor. It’s time to now to re-create middle class opportunities for our kids with good jobs that pay by the hour and create a career path.
Stan Marek is president and CEO of the Marek Family of Companies, a specialty subcontractor based in Houston.
Mislabeling construction workers as contractors draws federal scrutiny Regulators team up to fight practice of employers labeling construction workers as independent contractors.
By L.M. Sixel,By L.M. Sixel
June 13, 2014
Federal regulators are covering all the bases in a push to cut down on the widespread practice of construction companies' misclassifying employees as independent contractors, depriving them of overtime and other employment benefits.
The U.S. Department of Labor's wage and hour division is teaming with state licensing agencies so they know when license holders run afoul of wage and hour laws; meeting with construction companies and worker rights groups to develop new strategies to address the problem; and planning to add 300 more wage and hour investigators next year, including 52 in the Southwest, a local administrator said.
"It's really an alarming trend we're seeing," said Betty Campbell, the Labor Department's deputy regional administrator for wage and hour in Dallas.
She said the pervasive practice of misclassifying employees as independent contractors deprives them of the right to earn minimum wage and overtime as well as protection offered by such federal laws as the Family and Medical Leave Act and Americans with Disabilities Act.
Misclassified workers are also forced to pay the employer portion of the Social Security taxes, she added. And if they're injured at work, they have no workers' compensation. Or if they lose their job, they're denied unemployment benefits.
The initiative is coming at a time when the Labor Department estimates that one in every 13 workers in the Texas is in the construction industry.
A study last year by the Workers Defense Project and the University of Texas found that more than 40 percent of construction workers in Texas are either classified as independent contractors or paid under the table. The study, based on nearly 1,200 interviews with construction workers, estimated that payroll fraud alone represents an estimated $54.5 million loss in unemployment insurance tax revenue.
Campbell said it's not just workers who are hurt by misclassification. Employers who play by the rules can't compete when some employers don't pay taxes or overtime.
Stan Marek, president and CEO of the Marek Family of Companies, was glad to hear the Labor Department is turning a spotlight on a problem he's been trying to highlight for years.
"I'm a very unpopular guy in my industry," said Marek, who was on a conference call recently with Campbell and other Labor Department officials to discuss misclassification.
"We have to find a way to get our kids into the trades," Marek said, "and the only way we can do that is an hourly wage and a career path."
As more construction companies get away with misclassification, the more pressure there is to cheat, said Chuck Gremillion, executive director of C3-Construction Career Collaborative, a group of contractors and owners seeking to build a more secure and growing workforce for the commercial construction industry.
"It's kind of a vicious cycle," he said.
Gremillion estimates that contractors who misclassify employees operate with 30 to 35 percent lower labor costs than the companies that abide by the minimum wage, overtime, Social Security, unemployment insurance and other employment laws.
Lack of enforcement
It's not that hard to get away with it, he said, because of the lack of enforcement. That, in turn, makes the construction industry an undesirable place in which to make a career.
"Who wants to join an industry in which workers are paid unfairly?" he asked. "Construction used to be a great way to earn a middle-class income, but not so much anymore."
The problem is exacerbated by the push among high school educators to get students to enroll in college, he said. The dismantling of vocational educational programs has reduced the number of young people who are interested in a construction career.
To fill the jobs, many construction companies have turned to undocumented workers who are not likely to complain of wage and hour violations, he said.
To encourage better compliance with employment laws, the agency is seeking liquidated damages, which double the amount of back pay that an employer would have to pay, Campbell said.
The agency is also looking closer at the relationship between the general contractor and the subcontractors it hires to determine if there is a joint- employment arrangement. In those circumstances, the agency can seek back pay from the general contractor that hired the subcontractors.
"We want them to know they have a responsibility," she said.
Efforts won't stop there, Campbell added. She said the agency intends to pressure the owner of the property who hired the general contractor in the first place to make sure the workers are paid properly.
Extra dose of publicity
The agency is already doing that in the news releases it issues after back pay has been awarded, she said. When the owner is a well-known company or there is a joint-employer relationship, the agency is pointing that out.
While there is no way to determine if the extra dose of publicity is effective, Campbell said the agency plans to continue it.
Gremillion would like to see federal regulators show up at construction work sites and examine the payrolls. On-the-spot audits to see if taxes and other deductions are getting taken out of paychecks would draw attention to the problem, he said, speculating that it would stop some companies that have taken to calling their employees "entrepreneurs."
Recently, I described the reasoning behind the creation of Construction Career Collaborative (C3) and attributed it to the fact that the construction industry has an unsustainable workforce. In that essay, I listed five different but related reasons how we got “into this mess.” Among those are a misclassification of craft workers as subcontractors, a movement away from craft training and safety training, a de-emphasis of vocational education in our high schools in an effort to prepare all students for college, a perception among young people that the construction industry is dirty and unsafe, and a flood of undocumented workers who work in the shadows with no recourse to address wage abuse resulting in downward pressure on wages. All of these reasons contribute to why young people are not attracted to an industry that formerly provided an excellent path to a middle class living.
So one might ask, “What is the solution to this problem?” For starters, the commercial construction industry must cease business practices that make it unattractive to prospective workforce candidates such as misclassification of its workers as contract employees. To be blunt, who wants to work in an industry that does not pay matching social security taxes, federal and state unemployment taxes, provide workers compensation insurance, or any form of employee benefits?
Further, many craft trades in the commercial construction industry do not provide formal craft training or safety training. We must UNITE as an industry to develop and deliver this training in order to attract and develop our most important resource – our people.
In addition, we must HELP our school districts redevelop vocational education once again for it sows the seeds of interest in the construction industry with high school students.
Then, we must CREATE a construction-focused curriculum within our community colleges that prepares young people for entry into our workforce.
We must do what all other healthy industries do to attract people to their workforce. We must stop misclassifying our craft workers, pay them properly, and teach them the skills that they need to be successful.
We have work to do, and it will require members of the commercial construction industry to JOIN together to solve this problem.
Construction Career Collaborative
As many of you are aware, Construction Career Collaborative, also known as C3, was founded because several leaders in the commercial construction industry decided to step forward and address the huge problem that exists in our industry of an unsustainable workforce. In other words, more people are leaving the industry than joining it. In fact, the average age of a craft worker entering the industry is 29, and the average age of all craft workers is 47, with many expected to retire in the next several years.
One may ask, “How did we get into this mess?” The answer is not a simple one. In fact, it is quite complex. As one construction executive told me recently, “It has many tentacles.” So what are the causes of this complex problem?
The result? What was formerly an excellent path to a middle class living has lost much of its earning power, thereby not attracting young people to the construction industry and creating the unsustainable workforce that we have today.
In future blogs, I will address the necessary path forward.
Construction Career Collaborative
Construction Industry Institute (CII)
Construction Users Roundtable (CURT)
National Center for Construction Education and Research (NCCER)