According to the IRS, a person is treated as an independent contractor when the payer has a right to control or direct the result of the work, not the means and methods of accomplishing the result. On the other hand, if the payer can control what will be done and how it will be done, that person is probably an employee.
Some general contractors and owners gain a competitive edge by avoiding payroll taxes, social security payments, workers compensation, unemployment insurance, medicare taxes, health care and pension payments by misclassifying employees as independent contractors.
Unfortunately, it does not work that way. Contractors and owners usually avoid paying prevailing wages on jobs that require it and undercut local contractors and employees on any type of job. Contractors and owners are sometimes able to hire illegal workers and pay cash. Local workers lose jobs and federal, state and local governments do not receive the taxes that are due to them. Eighty-eight percent of Missouri revenue is from individual taxes and state taxes. Out of state undocumented workers do not generally pay those taxes. Because local construction workers are now unemployed, they are not paying income taxes and are unable to purchase items that they normally would. That means you, the consumer are actually paying more than your share for police, fire, parks, libraries, roads, schools and everything else.
In most cases it is not the workers who are at fault. Contractors and owners are taking advantage of these individuals by misclassifying them. Most are earning much less than workers performing the same type of work. Workers with low incomes are more likely to have subsidized housing, make use of food stamps and have government sponsored health care. Health care costs for uninsured workers are passed along to patients that do have health care coverage making that coverage even more expensive.
We have all heard the saying "You can pay me now or you can pay me later". That is really true. Those contractors and owners are pocketing the profits and leaving you the bill. A 2004 study by the Missouri Department of Revenue showed that more than 1000 out-of-state contractors are cheating their employees and the state by not collecting Missouri withholding from their wages. And just last year a major construction project in St. Louis that was financed with state taxpayer dollars, revealed that 9 of 13 out-of-state contractors on the job were not even licensed to do business in Missouri. That means the state had no record and no tax withholding and you are ultimately paying the tax bill.
