A slippery slope

Misclassifying employees as independent contractors and labor-only contracts pose challenges to contractors

Professional roofing contractors are facing two significant challenges as they seek to be competitive in the marketplace. Reputable roofing contractors, who historically have used independent contractors in certain situations and have correctly differentiated independent contractors from employees, find they are being targeted unfairly by investigators because of legislation and enforcement activities aimed at contractors who misclassify workers. At the same time, contractors report they are losing jobs to competitors who hire "labor-only" subcontractors.

The misclassification issue most often arises when an individual is hired to perform services as an independent contractor. Companies that misclassify workers as independent contractors gain a significant and unfair advantage over competitors who treat workers as employees because treating individuals as independent contractors offers significant cost savings.

The law

Employers are required to pay the employer portion of payroll taxes for Social Security and Medicare per the Federal Insurance Contributions Act (FICA) and make contributions to federal or state unemployment insurance funds per the Federal Unemployment Tax Act (FUTA).