New York Contractor Arrested for Wage Violations

An article recently published in the Wall Street Journal reports that a New York contractor was arrested and charged with one count of Grand Larceny in the Second Degree for alleged wage violations. The article claims that the contractor failed to pay workers the prevailing wage on a publicly-funded contract, and falsified payroll records to cover this up, resulting in 66 workers being cheated out of $298,000. The entire article can be read here.

Study Predicts Worldwide Shortage of Skilled Trade Workers

A study recently released by Manpower, Inc. finds that skilled trades are the hardest positions to fill worldwide, and predicts that the shortage of skilled workers will only worsen.  This is yet another strong argument for offering benefits.  In order to attract and retain skilled, experienced workers, employers will need to offer hourly workers benefits such as medical insurance and retirement plans.

Included in the category of skilled trades are jobs which require specialized skills which have traditionally been learned through apprenticeship.. Examples of skilled trades jobs include butchers, electricians, carpenters,cabinet makers, masons/bricklayers, plumbers and welders.

According to Manpower’s 2010 Talent Shortage Survey, employers in six of the world’s 10 biggest economies ranked skilled trades among their top two hiring challenges.

The seasonality of construction work can present challenges for benefits providers who aren’t set up to accommodate rapid workforce changes.  Employers should carefully interview potential benefits providers to determine if they offer the flexibility the construction industry requires.

Considering Dual Shop? Proceed Carefully.

As construction work becomes more and more difficult to find, contractors are looking for strategies that will enable them to stretch into new geographic areas as well as different types of work.  This is one reason contractors set up dual operation shops.

These shops often have common owners.  However that’s where the sharing should end if the contractor wants to avoid the potential for labor issues and hefty fines. While contractors may start out with every intention of keeping the operations separate, the temptation to send an employee from the non-union company to work on a union project – or vice versa – “just this one time” during busy times or when there’s an employee shortage can be great.  But once this line has been crossed, it’s easy to cross it again and that violates the integrity of having a dual shop operation.

Contractors considering this strategy should consult their trade associations for advice, and would be well advised to seek counsel from an attorney who specializes in labor law.

Wage Determinations for ARRA-funded Weatherization Work

Recently we’ve been hearing from contractors bidding on ARRA-funded weatherization work that job classifications and wage determinations for these projects are confusing.

Prior to the passage of the ARRA, which included grant monies which were provided to states for use in weatherization of residential structures, projects performed as part of the Weatherization Assistance Program were not subject to provisions of the Davis Bacon Act.  However, all work done on projects funded in part or in whole with ARRA funds are covered by the Davis Bacon Act,  including residential weatherization.

As a result, the Department of Energy requested that the DOL provide job classifications and wage determinations for workers who commonly perform weatherization work.  A spreadsheet listing these job classifications and the correlating wage determinations for each state can be found here.

The Department of Energy has published an extensive FAQ to address questions arising from the application of the Davis-Bacon and Related Acts to ARRA-funded weatherization projects.  It can be found by clicking here and then selecting Davis Bacon Act from the drop-down menu.

Important Deadline Approaching

Contractors are all too familiar with deadlines.  But an important deadline is fast approaching that many contractors may not be aware of.  To discontinue using a SIMPLE plan in 2011, contractors must notify both the financial institution handling the plan and their employees of their intent to discontinue making contributions to SIMPLE plan by November 1, 2010.

Many contractors start out using SIMPLE plans because they’re relatively easy to set up.  But they usually discover fairly quickly that SIMPLE plans lack the flexibility prevailing wage contractors need to effectively accommodate their retirement plan needs.

We have a summary of the reasons SIMPLE plans don’t work for prevailing wage contractors on our website. If you intend to switch from a SIMPLE plan to a different type of retirement plan more appropriate for contractors doing prevailing wage work in 2011, it’s important to provide written notification to your employees and the financial institution handling your plan by November 1, 2010.  It is not required that you notify the IRS.

Onsite or Offsite?

When it comes to understanding what does and does not fall under the auspices of the Davis Bacon Act, the devil is often in the details.  Recently we heard from a contractor who mentioned that while the publicly-funded project he was working on was not covered, the roofing and site work was.

However, if the roof for that same building is constructed onsite, and exceeds the $2,000 project size threshold (or is funded in part or in whole by ARRA funds) then it meets the criteria for falling under the requirements of the Davis-Bacon act.

This is just one small example of how confusing it can be to comply with the Davis-Bacon and Related Acts.  Have a compliance question? Submit it here and we’ll answer it for you in a future blog.

Allocation of Fringe Benefit Dollars on Prevailing Wage Jobs

Recently we’ve met some contractors who believe that the fringe portion of the wage on Davis Bacon projects must be allocated in a specific way.  In other words, there are some misconceptions among government contractors that a certain amount must go to provide health insurance, a specific amount invested in a retirement plan, and so on.

While the state of California does break out the fringe amount by line item on the wage determination, even there employers can contribute the fringe however they see fit, provided the benefits meet the Davis Bacon Act criteria for being “bona fide”.

Employers who are interested in maximizing tax savings, both for the company as a whole and for themselves as individuals, may want to look at increasing the amounts contributed for their hourly workers into company retirement plans.  Of course annual retirement plan limits apply to the total amount that can be contributed each year for retirement.  But increasing contributions made on behalf of hourly workers can result in huge tax benefits for company owners and key employees.

“Sweep”Audits for Contractor Compliance

An issue garnering attention among government contractors is “sweep audits”.  Teams of 3 to 5 investigators are visiting worksites and examining everyone on the project.   Prime contractors need to understand that they are responsible for whether their subcontractors – and any subs their subcontractors are using – are in compliance with applicable laws such as the Davis-Bacon Act.

A fourth-tier subcontractor brought in to install cabinets, may not even be aware that they are covered by the Davis-Bacon Act while working on an ARRA-funded project. It’s imperative that prime contractors ensure that all subcontractors on an ARRA-funded project, or any project to which the Davis-Bacon Act applies, understand their obligations under the law.

The audits are random and unannounced, so government contractors must keep impeccable records at all times.  With the increased number of investigators on staff at the DOL, it’s almost a given than any contractor working on an ARRA-funded project will be audited.

Nearly Half of Americans at Risk of Running Short of Money in Retirement

If you think having too much month at the end of your money is a problem, imagine running out of money during retirement.  A recent report released by the Employee Benefit Research Institute estimates that nearly half of all Americans are at risk for having inadequate retirement savings.

In formulating these projections, researchers analyzed and simulated six sources of retirement income: social security, defined contribution balances, IRA balances, defined benefit annuities and/or lump-sum distributions, and net housing equity.

While the study predicts that slightly more than 47 percent of Americans aged 56 – 62 are estimated to have inadequate income in retirement, that number is lower for those aged 46 – 55 and then, interestingly, increases for those aged 36-45.

The possibility of not having enough money to cover basic expenses in retirement is frightening. And it’s just one more reason it makes sense for government contractors to use the fringe portion of the prevailing wage to provide bona fide benefits, including retirement plans, for their hourly workers.

Several Agencies Crack Down on Misclassification

The White House has embarked on a “Misclassification Initiative” designed to improve enforcement of workplace laws, with particular emphasis on employers who wrongly classify employees as independent contractors in an effort to avoid payment of employment taxes, benefits and overtime.

In its 2011 budget, the US Department of Labor includes an additional $25 million devoted to this effort.  In addition, the DOL’s Wage and Hour Division received an additional $12 million and 90 new investigators to expand its enforcement efforts.

The DOL will also reward states that are successful at detecting and prosecuting employers that fail to pay the proper taxes. This pilot program received $10.9 million in funding.  Furthermore, the DOL budget includes $1.6 million to the Office of the Solicitor to enhance enforcement strategies and to promote legislative changes aimed at rectifying the misclassification of employees as independent contractors.

The Internal Revenue Service is in the midst of a similar crackdown.  In February of 2009 the IRS announced the Employment Tax National Research Project (NRP), which will conduct examinations to “collect data that will allow the IRS to understand the compliance characteristics of employment tax filers”.  In February of 2010 the NRP began auditing the first 2,000 firms.  This project is targeted at five key issues: worker classifications, officer compensation, reimbursement expenses, fringe benefits and non-filers.

In addition to these federal initiatives, many states have also begun their own efforts to identify misclassified workers.   Last year Delaware enacted a law specifically targeting the construction industry.   Other states cracking down on misclassification include Maryland, Colorado, Illinois, Indiana, Minnesota, New Hampshire, New Jersey, Rhode Island, and Washington.

Complying with these laws can be confusing, since the tests for determining whether a worker qualifies as an independent contractor vs. an employee differ among government agencies – and individual states may have their own criteria which may or may not conflict with the federal tests.

Companies which use independent contractors should conduct a thorough self-audit to look for any inconsistencies and to prepare for potential audits.