Employee misclassification, wage problems plague Marriott renovation project

This incident is just the latest example of companies getting caught in an employee misclassification fiasco.

Massachusetts state officials recently uncovered a slew of tax and labor law violations during an investigation of employment practices used by construction companies working on an $18 million renovation project at the Boston Marriott Copley Place.

The possibility of malfeasance was first brought to the attention of the state Attorney General's Office by the New England Regional Council of Carpenters. Investigators from the Joint Enforcement Task Force on the Underground Economy and Employee Misclassification subsequently discovered a wide range of violations.

The companies working on the hotel collectively failed to report $1.2 million in wages and defrauded the state of almost $86,000 in taxes. Sixty-three employees were illegally misclassified as independent contractors as part of as scheme to dodge taxes and avoid paying for insurance and other benefits.

In a press release, Massachusetts Attorney General Martha Coakley slammed the construction companies' underhanded tactics and portrayed her office's actions as necessary to ensure fair competition in the industry.

"We enforce these laws not only to protect workers, but to level the playing field for all businesses who play by the rules," said Coakley.

Joanne Goldstein, Massachusetts' secretary of labor and workforce development, elaborated further.

"These violations not only hurt employees, but also impact legitimate businesses and taxpayers, who end up subsidizing the unpaid wages, unemployment, and workers' compensation costs and taxes," explained Goldstein.

According to data from the attorney general's employee misclassification task force, the "underground economy" has been significantly expanding in Massachusetts. In 2011, the group collected almost $11 million in fines, back taxes and unpaid wages. This was up dramatically from the $1.4 million collected in 2009.

The spread of illicit labor practices is sure to attract increasing attention from state officials. It may even drive further tightening of local laws regarding independent contractor compliance.

Companies that work with freelancers should keep abreast of regulatory changes and enforcement actions in order to ensure that their independent contractor agreements will withstand scrutiny.

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