The General Assembly has approved a bill that would increase fines tenfold for violations of a prevailing-wage law that dictates the hourly pay on public construction projects, and allows the R.I. Department of Labor and Training to fine them without court action.
The measure, which started in the Senate and was approved by the House last Tuesday, increases the fines from $50 to $100, up to $500 to $1,000.
Separately, the Senate last week approved a House bill that would allow a contractor that loses a bid because a competitor misclassifies employees as independents as subcontractors – and thus cuts down on costs – to sue the competitor for damages.
The two measures’ sponsors say they hope that stricter penalties and potential civil liability will stop contractors from trying to avoid paying the prevailing wage, which varies from trade to trade. The prevailing hourly wage for an electrician in Providence, for example, is $31.97.
Misclassifying an employee as an independent subcontractor is one way general contractors “get out of” paying the prevailing wage, said Rep. Joseph L. Faria, D-Central Falls, who sponsored the House bill.
“Apparently it’s been happening quite a bit,” Faria said. “They’re not specifying that they are going to be using subcontractors.” He added that his bill is meant to “level the playing field” for contractors that do follow the rules.
In addition to avoiding paying prevailing wages, contractors that misclassify employees save money in payroll taxes, workers’ compensation and temporary disability insurance, said Tom Savoie, a business representative for Carpenters Local No. 94, which represents more than 2,000 carpenters in Rhode Island.
Savoie said misclassifying employees presents “huge savings” for an illegitimate contractor, and the higher fines for prevailing wage violations are “long overdue.”
“I don’t think it’s enough,” he said of the $500 to $1,000 fine. “It’s too easy to cheat.”
There aren’t enough state investigators to catch illegitimate contractors, he said, because there’s not enough funding.
“Construction is rampant with cheating,” said Greg Mancini, executive director of BuildRI, a coalition of unions and contractors that use unionized workers. “It’s very difficult to ascertain the frequency, but I think it happens very frequently.”
Even the Associated Builders & Contractors of Rhode Island, the “open-shop” contractors’ group that frequently butts heads with the unions on these matters, was onboard for this legislation. President Harvey Simms said they’re “good public policy,” and “designed to stop large-scale abuses.”
Mancini said it’s easy for contractors to cheat because the work they do is transient. They can hire employees using a 1099 tax form, which automatically classifies the employee as an independent contractor. That way they don’t have to pay Social Security, Medicare or workers’ comp.
Mancini said contractors, even on public projects, get busted for assigning bogus Social Security numbers to laborers, which implies that they hire illegal immigrants. It’s hard to judge how often it happens, he said, because illegal immigrants aren’t likely to come forward.
Licensed carpenters and other tradesmen are generally leery of complaining about a misclassification as well, Savoie said, because they don’t want to get fired.
The Rhode Island Builders Association supported the House bill, but opposed the Senate bill.
“The problem we had is not that they increased the fines,” said Roger Warren, executive director, but rather that it allows the Department of Labor to impose a fine without court action, which means instead of being found guilty by the court, a contractor would be found guilty through an administrative proceeding.
“It handed a little too much to the DLT,” Warren said.
That aspect concerned Edward Burman, owner of E.W. Burman Inc., a mid-sized general contracting company based in Warwick.
“You want due process in there,” he said, adding he wouldn’t want to see unions “blowing the whistle” on contractors, while the Department of Labor decides who is punished. Still, Burman said he supports the legislation.
“If those are the rules, you want everybody to be playing by the same rules,” he said.
But sometimes unions use legislation punitively, especially in regard to fines for unlicensed crane and forklift drivers, he said. General contractors get fined, even when it’s the subcontractor’s responsibility to make sure drivers are licensed.
“Sometimes they start fining everybody,” he said. “It becomes more taxing than policing.”
Colin Kane, of The Peregrine Group, which develops residential and commercial buildings in Rhode Island, said he doesn’t expect the legislation will adversely affect developers.
“Most of the developer communities buy from very sophisticated construction companies,” he said. Though price is a factor, Kane said, many developers also look at the contractor’s competency and reputation.
