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Houston City Council passes ordinance on misclassification of employees as independent contractors - (7/25/2008)

City toughens rules for contractors
Misclassification of workers could result in $500 fine
The new rules are aimed at making it harder for companies to misclassify their workers as "independent contractors," to avoid paying Social Security, Medicare, workers' compensation or unemployment insurance. Union officials say the practice is widespread in construction, allowing companies to underbid their competitors.
 
By CAROLYN FEIBEL
Copyright 2008 Houston Chronicle
City Council passed an ordinance Wednesday requiring better record keeping from contractors working for the city.
The new rules are aimed at making it harder for companies to misclassify their workers as "independent contractors," to avoid paying Social Security, Medicare, workers' compensation or unemployment insurance. Union officials say the practice is widespread in construction, allowing companies to underbid their competitors.
Council approved the ordinance 12-2, with Councilmen Ron Green and Mike Sullivan dissenting.
The ordinance requires all contractors, except professional service providers, to keep a list of every employee or independent contractor working on a city project, including descriptions of his or her duties and any benefits provided. If the contractor does employ an independent subcontractor, the city may ask the prime contractor to produce a copy of the Internal Revenue service Form 1099-Misc. for that subcontractor.
'Good business in town'
Violations could result in a $500 fine per misclassified employee or debarment from future city work.
"We want to make sure people do good business in town, we want to make sure we keep them on their toes," said Councilman Adrian Garcia, chair of the council committee that monitors contract compliance.
But Sullivan said it is not the city's job to check whether companies are properly withholding federal income taxes. If the city goes down that path, he added, "we should do it with all federal issues, not just one or two."
Contractors already have complained that the city's paperwork burden is too much, he added.
Others questioned the necessity of the ordinance, saying that misclassification plagues smaller-scale home and commercial construction, not the huge infrastructure projects that cities usually undertake.
"I just don't really see it affecting us," Jeff Nielsen said Tuesday. Nielsen is executive vice president for the Houston Contractors Association. The group's membership focuses on civil construction for government agencies.
The city's Department of Affirmative Action and Contract Compliance oversees about 350 construction contracts at any one time. An investigation turned up only three companies that appeared to be using independent contractors, said Director Velma Laws.
"Why are we charged with enforcing a law that the department says is not high priority?" Councilman Green asked.
That department already has a tough time enforcing contract goals for the participation of woman- and minority-owned businesses, he said.
carolyn.feibel@chron.com 

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