Those who play by the rules say they struggle to stay afloat while competitors who break the law profit. And their workers are left vulnerable, facing untreated injuries if they are hurt on the job and financial hardship if they get laid off.
Masonry company owner Doug Burton, center left, checks on a worksite in Raleigh on July 9, 2012. Burton plays by the rules: taxes, unemployment, workers comp. But, through the years, Burton lost his foothold in the commercial market in the Triangle. Two years ago, he discovered the problem: his competitors broke the law. They didn’t pay taxes for their workers and saved 25 to 30 percent in labor costs.
As a commercial masonry contractor, Doug Burton prides himself on being exact.
He counts bricks to calculate estimates. He knows each of his laborers by first and last name. He has memorized exactly what he’ll owe in taxes if he takes on an additional worker and knows week to week whether he can afford it.
Burton strictly follows rules, and until 2009, he made a good living doing it.
As the economy faltered and he and his competitors fought for scarce projects, Burton lost his footing. Time and again, his company, Whitman Masonry, got beat on bids, often by a hefty margin.
As the end of 2010 neared, he had shed more than half his labor force. He couldn’t figure out what he was doing wrong.
“Finally, it just dawned on me,” Burton said. “My competitors were cheating.”
Some of the other bidders were subcontracting their labor needs to middlemen who called their workers independent contractors – or treated them like ghosts, paid under the table and never acknowledged. A single employee cost Burton nearly 20 percent more to pay state and federal taxes, unemployment taxes and workers’ compensation insurance.
Those in the construction industry say the scheme is now prevalent across the trades. A News & Observer review of state Industrial Commission decisions, in which arbitrators sort through workers’ compensation claims, shows the practice is common and has penetrated other industries.
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