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Off-the-Books Laborers Expose California Contractors to Severe Penalties

In California, the number of off-the-books and misclassified laborers has increased a dramatic 400% since 1972; likely the result of contractors' willingness to tap the fringes for cheaper labor in an effort to keep project costs to a minimum and maximize profits.  Of the nearly 900,000 construction workers in California, 143,900 workers provide off-the-books labor and another 39,800 are misclassified by their employer as independent contractors.  

This practice has harmed California's contractors who follow California law and pay employees the correct prevailing wages and pay the applicable payroll taxes to the state and federal governments.  These contractors have also lost project bids and have endured unwanted scrutiny by the California Department of Industrial Relations and the California Contractor State Licensing Board.  

The risks of using off-the-books labor far outweigh any benefits for contractors.  First, contractors found in violation of California wage and hour laws face numerous fines and legal liability that often far exceeds the originally owed wages.  Second, contractors can be found guilty of payroll fraud and tax evasion for attempting to conceal the shadow employees from the state and federal governments.

The underground construction labor market has created a $1.2 billion wage gap.  For every dollar earned by an above-board employee, an off-the-books employee earns 52 cents and an incorrectly categorized one receives 62 cents.  Although many laborers have voluntarily shifted into the underground labor market in order to obtain employment during the recession, or simply for the goal of receiving untraceable, un-taxable cash, they have become disenfranchised and the victims of the construction industry's constant drive for cheaper labor. 

As a contractor, it is important that you follow California Wage and Hour laws, Department of Industrial Relations regulations and California Contractor State Licensing Board employer requirements.  If you have questions regarding current laws and regulations, or have questions regarding your company's compliance with California law, please feel free to contact Bowles & Verna's Construction Attorneys.


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