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Growing problem: Keeping labor legal


By DOMINIKA MASLIKOWSKI

Monday, August 28, 2006 11:15 PM PDT


The Daily News

BULLHEAD CITY - Bullhead City's population has been growing by about a thousand every year since 1980, and while the development might be good news to contractors who build the city's new homes and businesses, it doesn't come without growing pains. Keeping construction labor legal, safe and fair poses new challenges as the region grows.

Contractors striving to save time and money sometimes pay their workers under the table, hire illegal immigrants or operate without a license. But as the community grows, officials are stepping up efforts to enforce laws and standards.

Tim Carlton, a union representative with the Southwest Regional Council of Carpenters, claims paying under the table is an “epidemic” in the construction industry and - with the area's growth - it's not a problem likely to go away.


Sometimes employees may also “misclassify” workers as independent contractors to avoid paying taxes, he said.

“They write checks without withholding anything and classify them as 1099 (Tax form 1099-MISC),” he said. “If you work for a company that pays cash, you use the welfare system. The contractor doesn't have to pay. He's dodging the bullet and the taxpayer picks up the bill.”

Brian Livingston, Arizona Registrar of Contractors Legislative and Intergovernmental Affairs Director, said there are no laws against filing employees as independent contractors as long as they're paying taxes. But under-the-table transactions are punishable by suspending or revoking the contractors' license, Livingston said.

When an employee of a local construction company fell and broke his arm earlier this year, he was getting paid under the table and didn't have health insurance. The owner had some advice for him.

“He told him to go to DES (Department of Economic Security),” said Carlton. “He told him to get on welfare.”

The owner later gave the employee odd amounts of cash and even groceries, but failed to pay his hospital bill or emergency room service, Carlton said.

In another instance, an employee working for a local construction company filed a report with Carlton saying the owner “did not pay overtime” and “did not take out taxes (paid cash).” While the employee never provided formal testimony, Carlton was able to interview other employees working the same site who said the same thing.

He claims the owner paid his employees under the table while they were working on expanding and remodeling Western Arizona Regional Medical Center during the construction that was completed in July.

“This is a major remodel at a (major) hospital,” he said, claiming that WARMC has responsibilities to uphold.

WARMC issued a statement saying they are “not involved in the hiring of labor or any other contractor/worker- related issues.”

While those construction company employees reportedly made $12 to $13 an hour, the industry standard for commercial, metal-stud drywall is between $16 to $19 for non-union and $26 for union, Carlton said.

The owner denied ever paying employees under-the-table and said what he pays is between him and his employees but comparable to industry standards.

Carlton says while that company is now playing by the rules, he thinks the practice continues among other local contractors.

“There's no question that there are some operations paying under the table,” said Larry Adams, vice president of the Mohave Valley Contractors Association. “They can avoid the workman's comp, federal withholding, FICA and state income tax.

“It's far more likely to occur with very small contractors and guys that operate out of their pickups than with a legitimate firm,” he said, and is more common among residential than commercial work. There is also a “fair amount” of 1099 misclassification in the area, Adams added, saying such problems have existed in Bullhead City ever since he moved here in 1972.

UNLICENSED CONTRACTORS

Paying under the table is just one problem that The Arizona Registrar of Contractors deals with. Other problems include failure to complete contract, abandoning work and failure to pay employees or subcontractors.

“The amount of unlicensed contractors has been steady for the past four to five years, but now we're seeing an increase in unlicensed and unlicensed activities throughout the state,” said Brian Livingston, Legislative and Intergovernmental Affairs director.

Chief of Investigations Earl Young conducted the first sweep of Bullhead City recently and uncovered four contractors working on suspended licenses, five contractors working without licenses and 84 contractors in Mohave County who failed to display their license number at job sites during his three-day inspection of 384 locations.

Young also said Kingman had the record number of unlicensed cases in the state last year, with a total of 149.

During an undercover sting in Bullhead City a year ago, the Registrar of Contractors concentrated on unlicensed people and found 18 unlicensed contractors.

“That is very high,” Young said. “We're looking to do another such operation in the area somewhere in the near future strictly because of the results we had in this one.

“The growth that's going on in Mohave County compares to what's going on in Yavapai County - which is very substantial,” he said. “And from all indications it's going to continue. The things we hear are on the drawing board - it's going to continue growing out there, which will increase our work.”

Adams said that most unlicensed contractors pay under the table.

“It's an ongoing severe problem and always has been. It's probably worse today than it's been in the past,” he said. “And the reason? It's too lucrative. There's so much more money to be made if you don't comply with the law.”

A legitimate firm, Adams explains, pays up to 56 percent for federal and state withholding, workmen's compensation and other deductions.

“Roughly 56-57 cents of every dollar a legitimate employer has to charge the customer for his labor is going to the government one way or the other,” he said. “If they're circumventing that and paying cash, you're talking lots and lots of money.

“On a $250,000 house, a third is materials, a third is labor and a third is social load (taxes). They (unlicensed contractors) are beating that third of social load.”

HIRING ILLEGAL LABOR

Luca Zanna, one of the founders of the Mohave County Minutemen, says that along with the county's growth comes an influx of construction - and illegal immigrants who are willing to do it cheaply.

“Soon there will be two Home Depots, a new Lowe's and two Ace Hardwares,” he said. “And who'll be using them?”

Zanna thinks local builders are hiring illegal immigrants to save money and feels the problem must be curbed before the area expands, and becomes as uncontrollable as metro California. He proposes documenting employers who hire illegal immigrants on video and educating employers about the consequences of hiring illegal labor.

But other factors besides money might motivate employers to hire illegal labor.

“Saving money is maybe a part of it,” said Adams. “More important is availability - who you can get. Construction has been really hot here lately and there hasn't been enough of a labor pool anywhere to meet the demand that we've had. There's a crying need for people that are willing to do manual labor and this is certainly causing the influx of illegals here - because of the job availability.”

But Adams said there are some false assumptions people make about illegal immigrants.

“The assumption is that if there's a Hispanic worker on a construction job, he's illegal,” Adams said. “That is absolutely the farthest thing from the truth. ... There are many Hispanics that have lived here their entire lives totally legal and they're competent workers.”

Another assumption is that illegal immigrants make less money, he said, but it's not true in a market so tough that employers raise wages for everyone, hoping to attract more workers.

“The skilled labor shortage is so critical in our industry. That's the reason we organized the Academy of Building Industries. But we're losing our craftsmen nationwide. ... It's a thing shunned by society when a man makes a living with his hands.”

But the labor shortage is just one problem facing the construction industry as development brings new challenges to the area. In the face of Mohave County's continuing growth, officials who enforce labor rules say they'll increase their presence and strive to educate the public, in hopes of keeping the labor market legal, fair and safe.

Dominika Maslikowski is a general assignment reporter for the Mohave Valley Daily News. She can be reached by phone at 928-763-2505, ext. 111, or by e-mail at dmaslikowski@mohavedailynews.com.