Up to a fifth of Tennessee construction workers may be operating off the books, without mandatory insurance to protect them. That’s according to a new study released Wednesday.

Up to 38,000 Tennesseans are working in an underground construction economy. MTSU Sociology Professor William Canack says many are counted as “subcontractors,” but they are really hourly employees who don’t cost the company anything in workers’ compensation or unemployment insurance. Canack says rates go up as more shortcut the law.

“Some employers are not paying their fair share, so the premium responsibility then falls upon the contractors, large and small, who follow the law.”

Canack used census figures and IRS data to come to the findings presented to a House committee.

Chairman Judd Matheny says the problem is partly economic, but the workers who are misclassified lose their rights and customers could be hurt too.

“You could inadvertently open up liability to somebody else, perhaps a landowner or a third party could become liable for your injury.”

Matheny says he plans to propose new legislation to address the phony subcontractor problem. In January, the state legislature suspended a new law meant as a fix because business groups said it penalized too many real subcontractors.

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Many subcontractors said they would have to close up shop if the new law took effect.

Canack and fellow professor Randall Adams of Tennessee Tech suggest a new task force look at the overall problem of off-the-book employees. But Rep. Matheny, a Coffee County Republican, says a group that includes insurance companies is already meeting.

The study was funded by the Mid-South Carpenters Regional Council, an organization that looks at issues from the worker’s point of view. Canack says he and Adams were hired to perform an unbiased, detached look at the problem.

From the Executive Summary of the report:

As buildings go up in Tennessee more and more construction work has gone underground, signifying violation of several employment and tax laws. Using US Census or IRS tax filing data to calculate Tennessee construction workers and self-employed, an estimated 12,000 to 29,000 Tennessee workers are either misclassified as independent contractors or employed off-the-books.

State and federal agencies of occupational safety both say that the short-cutting businesses are also skimping on safety, Canack says.

“Workplaces that are improperly classified and regulated, are more likely to have unsafe conditions. Our friends at OSHA and TOSHA can speak to that issue better than I, but we have high rates of injury and mortality in the Tennessee construction industry as a result.”

A real subcontractor is easily defined, Canack says. And such businesses pay taxes and cover their own employees with proper workers compensation.

“An independent contractor would be a person who would, you know, govern their own hours, have their own tools, specify their own rate of pay and compensation…not compensation as a wage but compensation as part of a well-defined contract, for work performed.”

Numbers from the study:
TN construction workers, according the Census Bureau: 220,000
TN construction workers, according to state payroll records: 130,000

Canack says the thrust of the two professors’ work agrees with other, more empirical studies done in other states. The sociology professor says the current study’s numbers are, if anything, understated.