Rep. Joe Deshotel (D-Beaumont), chair of the House Business & Industry Committee, has filed legislation designed to strengthen penalties for failure to properly designate an individual as an employee of a contractor. The bill aims to reduce so-called “payroll fraud,” in which employees of contractors are designated as “independent contractors” (or “1099 workers”) rather than as employees. Complaints have surfaced at the Texas Workforce Commission and in the media noting that this practice allows some employers to avoid unemployment taxes, payroll taxes, or workers’ compensation insurance. Avoiding these costs, critics say , may allow some contractors to lower bids for public and private sector construction projects, thus discriminating against employers who fully comply with the law.
HB 372 requires the Workforce Commission to investigate complaints and, if it finds an employee guilty of a violation, assess administrative penalties against the employer. Penalties begin at $500 per individual not property designated with enhanced penalties for future violations.
This bill could have significant ramifications for the construction industry in Texas. We will closely monitor the progress bill and work with TCJL members and other organizations with an interest in the issue.