The majority of builders in non-union residential construction in Massachusetts avoid treating their workers as regular employees, relying on “labor brokers” to provide a steady stream of often undocumented workers who are frequently paid in cash and have little recourse if they are injured on the job, according to a new report from the University of Massachusetts Amherst Labor Center.
The system enables wage theft and the exploitation of vulnerable workers, while costing the state millions in unpaid payroll taxes and putting legitimate contractors at a disadvantage, the report says.
Practices such as the illegal misclassification of workers as independent contractors, wage theft, tax fraud, and paying workers in cash, which were once at the fringes of the construction industry, are now at the center of medium and large residential construction statewide, according to the study.
The study estimates that worker misclassification and off-the-books employment allowed Massachusetts construction employers to reduce labor costs by at least $140.4 million in 2019.
“We need to hold the developers responsible,” said Tom Juravich, lead author of the study and a professor of labor studies and sociology at UMass Amherst. “If this becomes a model for construction this could really undermine legitimate contractors in the Commonwealth.”
Both the Associated General Contractors of Massachusetts and the Association of Home Builders and Remodelers declined to comment on the report.
The authors of the study conducted 60 interviews with both documented and undocumented workers and union and non-union contractors and analyzed data from the Massachusetts Department of Revenue, the Department of Unemployment Assistance, and the Department of Industrial Accidents.
Employer payroll audits conducted by the DUA between 2017 and 2019 indicate that more than one in six Massachusetts construction employers (16.8 percent to 17.9 percent) misclassify workers as independent contractors, according to the study. Data from the DUA and the Department of Revenue also indicate widespread misclassification of employees in residential construction, specifically in the finishing trades, according to the report.
Most wage theft occurs in residential construction where projects are typically quicker, smaller, and involve less than commercial projects, and is most common among individuals without union support, said Bert Durand, communications director at the North Atlantic States Regional Council of Carpenters, which worked with Juravich on the study.
“The developers and the general contractors turn a blind eye because they benefit from a lower price and they know that legally and practically they are not going to be held liable for what happens on their job site,” Durand said.
Durand’s union, which is one of the largest construction unions in Massachusetts, has long tried to draw attention to issues of what they call wage theft, and launched public campaigns against contractors and developers they’ve said are misclassifying or otherwise exploiting workers.
Earlier this month, they led the creation of a new “Responsible Development Coalition,” which aims to influence the major candidates in Boston’s mayoral race to support better pay and stronger protections for construction workers. They plan to pump hundreds of thousands of dollars into the effort.
An analysis by the study’s authors of “off-the-books” employment in the construction industry in Massachusetts projects that there were between 22,146 and 36,719 workers affected by wage and tax fraud in 2019, accounting for 9.5 percent to 15.8 percent of the industry’s workforce.
At the heart of the hiring system is what the report calls “a new labor intermediary”: labor brokers. The report says they provide the vast majority of workers — often undocumented — in residential construction.
“Without corporate identities, they operate largely in the shadows and are nearly untraceable in that they pay their workers in cash and do not keep any records of employment,” the report said. “This cash-only world is a hothouse for wage theft, a central feature of this business model.”
The study examined tax records on sole proprietorships from the DOR and found “alarming rates of contract labor usage” in siding, framing, finish carpentry, painting, drywall, flooring, and roofing. For example, framing contractors reported $189 in contract labor costs for every $100 of employee wages in 2019. In contrast, electrical contractors spent just $13 in contract labor for every $100 of wages.
The authors of the study project that misclassification of workers in the Massachusetts construction industry led to a $24.5 million to $40.6 million shortfall in the state’s unemployment insurance fund in 2019. Contractors allegedly evaded between $37.0 million and $78.3 million in workers’ compensation insurance premiums and shortchanged workers by not paying between $19.3 million to $40.8 million in required overtime premiums in 2019, according to the report.
And workers who are paid in cash and not covered by workers’ compensation have little recourse if they are injured on the job.
The report recommends several areas where change is needed, including reviewing and revising current laws. “The Massachusetts construction industry is a $22 billion sector featuring over 174,489 employees and many other workers not directly employed,” the report said. “Despite the enormity of the industry and its critical place in the state’s economy, neither the laws nor the enforcement of them is sufficient.”
More resources should be allocated to investigating wage theft and tax fraud and stiffer penalties should be imposed on companies found to have stolen wages or evaded taxes.
The Baker administration should also reinvigorate the Council on the Underground Economy (CUE) and require the secretary of Labor and Workforce Development to fulfill the statutory mandate of the CUE. The report says that the CUE has only held one meeting in six years under the Baker administration.
The report also argues for “joint liability laws and successor policies” that would hold developers and general contractors accountable for the behavior and actions of contractors, subcontractors, and labor brokers. A number of other states, including California, have passed or are considering this type of legislation.