The current construction landscape is competitive. Management teams often find themselves scrambling to win large jobs, while trying to be cost-efficient. Such scrutiny of costs has led to companies structuring their contracts to pay laborers as little as possible, skimping on implementing proper safety measures at job sites, and neglecting to recognize environmental protection standards, among other issues. This has resulted in increased regulation to protect the workforce against these negative externalities. Here are the key regulatory authorities’ general contractors answer to and areas to be mindful of in day-to-day operations.
Department of Labor (DOL)
The DOL lists the misclassification of laborers by their employers as one of the most serious problems facing covered workers; misclassification puts workers at risk of being denied essential protections and benefits they would otherwise be entitled to. Classifying employees as independent contractors is the most prevalent violation, it allows contractors to avoid paying their share of Social Security and Medicare taxes, overtime pay, employee benefits such as vacation, sick, and holiday pay, unemployment compensation tax, and workers’ compensation insurance. Employers who are not careful about correctly categorizing their laborers run the risk of paying significant fines plus wages and benefits in arrears. Even worse, class action lawsuits from employees and their families, and negative publicity can haunt non-compliant companies. Employees who feel they were misclassified and wrongfully denied wages and benefits, can file a complaint with the DOL, which triggers a prompt investigation that can result in large penalties. In 2013, DOL investigations resulted in over $83 million in paid back wages for roughly 108,000 misclassified employees.
Defense Contract Audit Agency (DCAA)
Recently, the DCAA has gotten tougher on defense contract audits. Previously, a certain degree of non-compliance was allowed, now there is a strict grading system of pass or fail. Contractors who work with the Department of Defense in any way, should make sure their books and internal controls can stand up to an audit from the agency. Review the “Audit Process Overview – Information for Contractors Manual” under the Guidance tab on the DCAA’s website for a great overview of the procedures performed to assess compliance.
Occupational Safety and Health Administration (OSHA)
All private sector businesses in the U.S. must comply with OSHA, the demands of construction work put contractors at increased risk for compliance violations. Items that go overlooked, no matter how small, can take a toll on cash stores. Even minor infractions can cost up to $7,000 per violation, per occurrence. Violations can quickly compound and each repeat violation can cost a business up to $70,000, a proactive plan to meet OSHA requirements before an offense is committed will save time and money in the end. Consider designating one or more employees within your organization to periodically monitor new OSHA regulations and assist with implementation strategies.
Environmental Protection Agency (EPA)
The most common EPA violations are improper disposal of hazardous materials, which in construction most commonly involves paint. Violations of EPA statutes can result in civil or criminal charges depending on the severity of the situation. Modern best practices generally incorporate compliance with EPA statutes on job sites, but if this an unevaluated business area, it would be wise to do so to avoid future liabilities.
State Licensing Boards for Contractors
Know the requirements for obtaining licensing and permits in each jurisdiction you do business, and for each trade your company performs. Failure to do so could land you in hot water.
For more information, contact Aronson’s Construction & Real Estate team at 301.231.6276.
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